For each of the following situations, use the IS-LM-FX model to illustrate the effects of the shock. For each
case, state the effect of the shock on the following variables (increase, decrease, no change, or ambiguous): Y, i, E, C, I, TB. Assume the government allows the exchange rate to float and makes no policy response.
a) Import demand increases,
b) Investors expect a more depreciated currency.
a) Increase in import demand shifts the IS curve to the left which leads to fall in... View the full answer