IS-LM modelin an open economy with flexible exchangerates The following equations are those for a small, open economy, which takes the world's real interest rate ( #*) as given. In particular: M 24+0.8Y - 4007 Money market equilibrium P Ci=2+0.8(Y - T)- 200w Desired consumption 14 =30- 2007 Desired investment NX =24- 0.1Y- 2e Desired net exports Y=C?+I'+G +NX* Goods market equilibrium a) Derive the IS and LM curves for this economy with the world real interest rate on the left-hand side. Now derive two equations for the real exchange rate (e): the first, by using only the IS curve and the second, setting IS and LM curves equal to each other and solving for e. Assume that the economy is at full employment. Based on your equations for e, discuss briefly how e would respond to a rise in government spending (G) and separately to a rise in the level of taxation (7). As well, how would each equation respond to a change in output (Y)? If each equation were to give a different answer, in which one would you have the most confidence