Miami University What Assumption Makes the IS LM FX Model a Short Run Model Questions

Please read Chapter 14 Output, Exchange Rates, and Macroeconomic Policies in the Short Run in your textbook. Type up your answers to the following questions:

1. What assumption makes the IS-LM-FX model a short-run model?
2. If some unexpected event such as a pandemic happens which causes consumer confidence to plummet, holding everything else constant, what do you think will happen to consumer spending? On a graph, do you move along a consumption function or do you shift the entire consumption function? Explain.
3. What are the tools of fiscal policy?
4. All else constant, how does dollar depreciation lead to expenditure switching? Using a graph like Figure 14-3, will this cause a movement along the curve or a shift of the entire curve? Why?
5. What does the Keynesian cross describe? List two factors that can cause equilibrium output in the Keysian cross to increase and explain briefly with some real world example.
6. What is the IS curve about? If interest rate rises, do you move along an IS curve or do you shift the entire curve? Explain.
7. List two current events that will cause the IS curve to shift. Explain whether each event will cause the curve to shift left or shift right.
8. What is the LM curve about? If output rises, do you move along an LM curve or do you shift the entire curve? Explain.
9. When the Fed reduces money supply in the US, is this considered expansionary or contractionary monetary policy? Will this cause a movement along the LM curve or will it cause the LM curve to shift? If the LM curve shifts, to which direction? Explain briefly.
10. Suppose the Fed reduces money supply in the US temporarily. How will this affect the US interest rate, real GDP and dollar’s exchange rate? 
11. Why is fiscal policy more powerful under fixed exchange rate policy than under floating exchange rate policy?