Use the following information to answer questions 10 and 11.

Suppose the home economy was initially at the long run equilibrium. The consumption in the country depends on the disposable income, Y-T, C = C(Y-T), and the investment depends on the interest rate of the country,i, I = I(i). Assume the home country follows a floating exchange rate system. Now, there is an increase of the expected future spot exchange rate (units of home currency per one unit of foreign currency).

1. Use the IS-LM-FX model to explain (in words) the short run effects of the increase in the expected future spot exchange rate. Be sure to explain

(i) movements (shifts) of all curvesstarting from theinitial long runequilibriumincluding

(ii) the reasons for the shifts, and

(iii) the movements of equilibrium levels (relative to the initial levels) for the home country's interest rate, income (output) level, and the exchange rate (amount of home currency per one unit of foreign currency) to get full marks.