Suppose we are in an open economy currently operating at the long run equilibrium. Explain how each of the following would affect (a) the short run; (b) how fiscal policy can bring back the economy to its potential; and (c) what challenges the government would face. a) An exogenously caused decrease in export spending. b) An exogenously caused increase in the marginal propensity to save. - AE becomes flatter because the marginal prospensity to spend decreases, potential gdp decreases, IS curve shifts and becomes steeper because AE is flatter, change in gdp are less per change in spending, decrease taxes, rotate IS back