Use the IS-LM model of the short-run to identify which of the exogenous shocks listed below could be causing the recession consistent with the given facts (There is only one correct answer for each case.), and explain your reasoning. Each case is completely separate from the others. The choices for each case are the same and are as follows: - exogenous shift in tastes away from home goods toward foreign goods (fall in marginal propensity to consume home goods) - exogenous fall in real money demand - cut in government spending - cut in money supply

Make the usual IS-LM assumptions: Consumption is just a function of disposable income with MPC<1; investment is just a function of the interest rate; for simplicity assume that the trade balance is only a function of the real exchange rate and not of income levels. a) Malaysia is experiencing a recession where both investment and the trade balance are falling. b) Mexico is experiencing a recession where the trade balance is falling even though the currency is depreciating. c) Argentina is experiencing a recession where the trade balance is improving.