Answer Happy

From question 1: Imagine that you run a central bank in a
floating exchange rate regime. Your current goal is to stabilize
real GDP by keeping it constant, and you control the money supply
to do so.
2. 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): (a) The president of your country cuts taxes. (b) The president circumvents the central bank and increases the money supply with- out your approval.