2. You are working as the chief economist for the Ministry of Economy in Peru. For each of the following situations, use the IS-LM-FX model to illustrate the effects of the shock. For each case, state the effect of the shock on the following variables (increase, decrease, no change, or ambiguous): Y, i, E, C, I, TB. Assume the government allows the exchange rate to float and makes no policy response. a. Peru's main trading partner, China, enters into a recession. China's output decreases. b. Investors expect a depreciation of the Sol, the Peruvian currency. c. The money supply in Peru increases. d. Peruvian government increases government spending.

2. You are working as the chief economist for the Ministry of Economy in Peru. For each of the following situations, use the IS-LM-FX model to illustrate the effects of the shock. For each case, state the effect of the shock on the following variables (increase, decrease, no change, or ambiguous): Y, i, E, C, I, TB. Assume the government allows the exchange rate to float and makes no policy response. a. Peru's main trading partner, China, enters into a recession. China's output decreases. b. Investors expect a depreciation of the Sol, the Peruvian currency. c. The money supply in Peru increases. d. Peruvian government increases government spending.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

2. You are working as the chief economist for the Ministry of Economy in Peru. For each of the
following situations, use the IS-LM-FX model to illustrate the effects of the shock. For each
case, state the effect of the shock on the following variables (increase, decrease, no change, or
ambiguous): Y, i, E, C, I, TB. Assume the government allows the exchange rate to float and
makes no policy response.
a. Peru's main trading partner, China, enters into a recession. China's output decreases.
b. Investors expect a depreciation of the Sol, the Peruvian currency.
c. The money supply in Peru increases.
d. Peruvian government increases government spending.

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