In late 2007, the US slipped into a serious recession, due to falling home prices (falling wealth), investor pessimism, and reduced exports. Reinforcing these shocks were a large negative money shock (due to a sharp drop in the M1multiplier), and a credit crunch (impaired lending to firms, which negatively affected production).
Use the IS-LM-FX diagrams to analyze the impacts of these negative shocks. Indicate the impacts on the following variables: Y, i, E, C, I, TB (int he absence of any government policies).