solution

during the 2008 global financial crisis in poland and latvia consumers and investors cut bacck their expenditures; the countries’ exports declined as a result of contraction in GDPs in their trading partners. poland had a floating exchange rate regime and pursued a strong monetary expansion to stimulate the economy. latvia had pegged their currency to euro and slashed government spending to satisfy the demamds of European Union and the International Monetary Fund assistance program
a) draw separate IS-LM-FX graphs for poland and latvia and show the equilibrium RGDP of the countries before the global financial crisis occurred on your graphs. Label the equilibrium point Show, on your grpah the effects of the global financial crisis and the equilibrium after the crisis. Label the equilibrium point B on your graphs, show the effects of the policies undertaken in the countries following in the financial crisis and label the new equilibrium point C.
b) report if the variables listed in the tabel below would increase/decrease/stay the same following the policies implemented in Poland and Latvia in response to the global financial crisis, and provide the reasoning behind your answer
After policy implementation Poland Latvia Rasoning
Home equilibrium output, Y
consumption
interest rate
investment
exchange rate
trade balance