Consider a small open economy described by the AA-DD model.Assume throughout that price stays constant.

Suppose now that the central bank is required to keep the exchange rate fixed at its original level before a rise in government spending.What does it need to do to monetary policy to push the exchange rate back to its original level after the rise in government spending?How does this impact the nominal exchange rate (E), interest rate (R), output (Y), and the current account, and central bank reserves?