3. IS-LM: Open Economy. Consider a small country with perfect capital mobility and a floating exchange rate. a. Plot the country's IS* and LM* curves on a graph. Label the x- and y-axes with the appropriate variables. b. Suppose the country raises taxes (contractionary fiscal policy). Show the effect on the model in your graph from part a.). c. For the remainder of the problem, we will analyze the result of the fiscal contraction step-by-step. First, what is the initial effect of the fiscal contraction on income? How does this affect money demand? d. How do interest rates respond? What effect does this have on capital flows? After the change in capital flows, what is the domestic interest rate relative to the world interest rate? e. What is the impact of the change in capital flows on the demand for domestic currency? What effect does this have on the currency's value? f. As the currency changes in value, what is the effect on the price of domestic goods relative to foreign goods? How does this affect net exports? What is the overall effect of the tax hike on income