Answer Happy

Continue with the scenario from question 1, but now suppose your current goal is to maintain a particular exchange rate target. Using the open economy IS/LM model, what happens to GDP, the interest rate, and the trade balance (net exports) in response to each of the following shocks (illustrate the changes in the 3-pane diagram and then summarize your findings): I (a) The president of your country cuts taxes. (b) The president circumvents the central bank and increases the money supply with- out your approval.