The following questions are all related by their focus on the Third Generation Crisis Model that features a Hot Money investment boom followed by a panic and sudden stop. Throughout we are thinking of a country called home that seeks to maintain a fixed exchange rate versus the U.S. dollar. Initially, the country allows for the free movement of capital (no capital controls). 1. Suppose that home experiences a Real Estate Boom that leads to a surge in aggregate demand (Ibar up). Use the IS-LM model to describe the impact on the country's output, trade balance, and central bank balance sheet. Describe the potential impact of the hot money inflows on the balance sheets of the banking system if the banking system is poorly regulated and subject to the effects of moral hazard. After a long boom, suppose that the investment community becomes worried that the country is vulnerable to a sudden stop. This leads to the expectation of an imminent, uncontrolled devaluation. Use [S-LM model to describe the impact of the fear of a devaluation on the country's interest rate, its international reserves, and its output. Given your answer to question 2, explain how a sudden stop can cause both a banking crisis and a sovereign debt default. . What macro-prudential policies might a finance official undertake to make a country less vulnerable to a third generation crisis? Explain the logic