18 (15 points) Consider a small open economy and it can be described by the following set of equations: Consumption: C = 2500 + 0.75(Y - T) - 2500r Investment: I = 3500 - 2500r G = 1500 T = G + 500 NX = 2000 - 75e Real money demand: L = 0.4Y - 500r Note: Real interest rates are expressed in decimal points, i.e., if r = 0.5, then r = 50%. a) Derive the IS* and LM* equations in terms of exogenous variables if the world interest rate is 20%. (4 points) b) Suppose the level of money supply is 22500 and the domestic price level is 5. Use the IS* and LM* equations from part (a), find the short-run equilibrium levels of output, nominal exchange rate, private saving, and net foreign investment if the economy has a flexible exchange rate regime. (6 points) c) Now, suppose the economy fixes the nominal exchange rate to 40 and the price level is 5. Use the IS* and LM* equations from part (a), find the short-run equilibrium levels of output and money supply that are consistent with the fixed exchange rate. (5 points)