17 (10 points) Consider a small open economy that has a flexible exchange rate regime, and it can be described by the following set of equations: Consumption: C = 1000 + 0.75(Y - T) Investment: I = 800 - 10r G = 200 T = 200 NX = 750 - 100e Real money demand: L(i, Y) = Y - 50i Expected inflation: e = 0 Note: Both nominal and real interest rates are expressed in percentage points. For example, if r = 10, then r = 10%. a) Derive the IS* and LM* equations in terms of exogenous variables if the world interest rate is 10%. (4 points) b) Suppose the level of money supply is 7000, the domestic price level is 2 and the foreign price level is 6. Find the equilibrium values of output, net exports, nominal exchange rate, and real exchange rate. (6 points)