Economic expansion throughout the rest of the world raises the world interest rate. Use the

Mundell-Fleming model to illustrate graphically the impact of an increase in the world interest

rate on the exchange rate and level of output in a small open economy with a floating-exchangerate

system. Be sure to label:

i. the axes

ii. the curves

iii. the initial equilibrium levels

iv. the direction the curves shift

v. the new short-run equilibrium.