4. The country of Leverett is a small open economy. Suddenly, a change in world fashions makes the exports of Leverett unpopular.

a. What happens in Leverett to national saving, investment, net exports, the real interest rate, and the real exchange rate? Elaborate with diagrams.

b. The citizens of Leverett like to travel abroad. How will this change in the exchange rate affect them? Use diagrams .

c. The fiscal policymakers of Leverett want to adjust taxes to maintain the exchange rate at its previous level. What should they do? If they do this, what are the overall effects on saving, investment, net exports, and the interest rate? Use diagrams.