The attached document has the questions - ECN 438 Homework 4 Due 4/22 Spring 2013 Analyze the effects of each of the shocks below using the three diagrams I have been using in class: the IS-LM diagram, the money ma

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ECN 438 Homework 4 Due 4/22 Spring 2013 Analyze the effects of each of the shocks below using the three diagrams I have been using in class: the IS-LM diagram, the money market diagram, and the FX market diagram. In each diagram, use point A to identify the initial, pre-shock macro equilibrium; use point B to identify the new equilibrium once the economy has adjusted to the shock, assuming no change in the money supply; use point C to identify the new equilibrium assuming that the home country adjusts its money supply to keep domestic output (Y) at its initial, pre-shock level; and use point D to identify the new equilibrium assuming instead that the central bank adjusts the money supply to keep the exchange rate at its initial, pre-shock level. So, for each shock, there will be three diagrams with each diagram containing the four points A-D. Be sure to label your diagrams fully and show all of the involved shifts of curves. Do this for each of the following shocks: 1. an increase in the home country’s individual income taxes (T) 2. an increase in foreign output/income (Y*) – assume there is no change in the foreign interest rate. 3. an increase in home country money demand (L) 4. a drop in the expected future value of the home country’s currency exchange rate e in the home country’s individual income taxes (T) 2. an increase in foreign output/income (Y*) – assume there is no change in the foreign interest rate. 3. an increase in home country money demand (L) 4. a drop in the expected future value of the home country’s currency exchange rate cro equilibrium; use point B to identify the new equilibrium once the economy has adjusted to the shock, assuming no change in the money supply; use point C to identify the new equilibrium assuming that the home country adjusts its money supply to keep domestic output (Y) at its initial, pre-shock level; and use point D to identify the new equilibrium...

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