In an earlier interest rate announcement, the Riksbank announced that it believes that the outbreak of the corona virus should reduce global growth in the world economy.

a) Interpret it as foreign GDP ( *) falls and analyze the effects on the Swedish economy in the short and medium term, using an AS-AD model for an open economy. For simplicity's sake, assume that = N initially and that the real exchange rate is not affected by the case in *.

b) Illustrate with the help of a figure how the price level in Sweden changes over time in question a).