Home is a small open economy while Foreign is a large open economy, and Home has a exible exchange rate. Besides, both countries are in their long-run equilibrium. Now, to lower its budget decit, the Foreign government lowers its spending. Note: For both parts, you must provide explanations why the variables of interest change or remain unchanged in order to receive any credit. a) Use the Mundell-Fleming model (Y -r graph) to illustrate graphically and explain in words the short-run effects of this change on Home's output, net exports, real exchange rate, nominal exchange rate, and real money balance. Only the rst diagram will be graded. (10 points) b) Use the long-run classical model of a small open economy to show, in graphs and words, the long-run effects this change on Home's output, net exports, real exchange rate, nominal exchange rate, and real money balance. (10 points)