a small open economy is described by the following equations:

C = 75+ 0.6(Y-T)

I = 300- 25r

NX = 175-60e

M/P = Y -30r

G = 250

T = 250

M = 3500

P = 4

r* = 4

a. Derive and graph the IS* and LM* curves.

b. Calculate the equilibrium exchange rate, level of income, and net exports

c. Assume a floating exchange rate. Calculate what happens to the exchange rate, the level of income, net exports and the money supply if the government increases its taxesby 50. Use a graph to illustrate what you find compared to b.

d. Now assume fixed exchange rate. Calculate what happens to the exchange rate, the level of income, net exports and the money supply if the government increases its spendingby 50. Use a graph to illustrate what you find compared to part b.