Assume that PPP holds and that expected future exchange rate adjusts immediately. What will be

the effect of an increase in the foreign price level $P^{***}?$

On the diagram on the right:

$1.)$ Using the line drawing tool, draw the new AA curve. Properly label this line.

$2.)$ Using the line drawing tool, draw the new DD curve. Properly label this line.

$3.)$ Using the point tool, mark and label the new equilibrium point. Label this point $\text{'}2\text{'}.$

Carefully follow the instructions above and only draw the required objects.