1- Use a properly labelled IS-LM graph to analyze and illustrate the effect of the following on the goods and money markets.
A) A decrease in government spending
B) Increase in money supply
C) Mix of a and b
Make sure to explain the chain of events that happen in each case.
2- The rate of interest on one-year government bonds in Canada is 2.8 %. The same interest rate is 1.8% in Japan.
If the current exchange rate is $Can 1.25 / 100 Yen, calculate the expected exchange rate for the end of the year.
3- Use the Income- Expenditure Model (Y and ZZ lines) to illustrate and explain the effect of a increase in exports (X) on the equilibrium domestic output (Y) what could be done to restore output to its original amount? Carefully illustrate and explain your answer.