1. In what respect is the Dornbusch model a compromise between the Mundell-Fleming model and the Monetary model? 2. Using the Dornbusch model, consider and economy with a flexible ex- change rate that intends to conduct contractionary monetary policy. (a) What are the appropriate assumptions relevant to this model and what are their implications? (b) Using appropriately labelled diagrams, describe the long-run ef- fects of monetary contraction on the exchange rate, prices, the interest rate and output. Describe the intuition behind each of your answers with particular attention to the long-run.