Assume that Kwangya consumers are concerned about the country's economic situation as a result of the ongoing conflict. In anticipation of future uncertainty, they begin to save more.

b. Because foreign investors have lost faith in this country, they are willing to pay a premium to invest in Kwangya. What happens to output and the exchange rate if the Central Bank of Kwangya is willing to raise interest rates in order to regain the confidence of foreign investors? Include a relevant diagram in your response.