2. Consider the open economy IS-LM model. The equation of the IS curve is F Y =C(Y,T) + I(Y, i) +G+NX(Y,Y*, E). Assume P = P*, this implies E. The uncovered interest parity (UIP) condition is Ee E 1+i-** The equation of the LM curve is M * =YL(i). P I have shown the initial equilibrium of this economy in the five inter- connected diagrams on the next page. The initial equilibrium point in all diagrams is 21. In the initial equilibrium, 21 = ij. (a) Copy the five inter-connected diagrams to your answer book. (5 points) (b) Suppose that the foreign interest rate decreases from ito im. In each diagram, show the effects of the decrease in the foreign interest rate. In all diagrams, label the new equilibrium point 2. (15 points) [Hint: In the new equilibrium, iz