2. (20 marks) Consider a Keynesian small open economy. Assume the economy is initially in general equilibrium and the domestic price level does not change in the short run. (a) (10 marks) In a flexible-exchange-rate system, if the foreign interest rate increases, what is the effect on domestic output, real interest rate, and real money demand in the short run and in the long run? Explain briefly and illustrate using the IS-LM-FE model in a graph. (b) (10 marks) In a fixed-exchange-rate system, if the foreign interest rate increases, what is the effect on domestic output, real interest rate, and real money demand in the short run and in the long run? Explain briefly and illustrate using the IS-LM-FE model in a graph.