3. Now, Assume that Peruvian government responds by using monetary policy to stabilize output after a shock. For each of the following situations, use the IS-LM-FX model to illustrate the effects of the shock and the policy response. 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. 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.

3. Now, Assume that Peruvian government responds by using monetary policy to stabilize output after a shock. For each of the following situations, use the IS-LM-FX model to illustrate the effects of the shock and the policy response. 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. 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

3. Now, Assume that Peruvian government responds by using monetary policy to stabilize output
after a shock. For each of the following situations, use the IS-LM-FX model to illustrate the
effects of the shock and the policy response. 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.
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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