Answered: Now, Assume that Peruvian government…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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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