Consider the short run with completely sticky goods prices. Assume also that expected inflation is unchanged. Suppose (domestic) money multiplier (m) decreases.

a. Consider the case of a closed economy. Illustrate graphically how the short-run equilibrium is reached in the IS-LM model. Determine what will happen to the real interest rate, real GDP, consumption spending and investment spending of the closed economy under consideration and explain how you obtain your results.

b. Instead of (a), consider the same event but in the case of a small open economy under a fixed exchange rate regime. Illustrate graphically how the short-run equilibrium is reached in the IS-LM model (in the r-Y space) as well as in the Mundell-Fleming IS*-LM* model (in the e-Y space). Determine what will happen to the (domestic) real interest rate, real GDP, (domestic) consumption spending, (domestic) investment spending, the value of the domestic currency and net exports of the small open economy under consideration and explain how you obtain your results.