IS-LM-BP with imperfect capital mobility 4. Consider a small open economy with sticky prices and wages and imperfect capital mobility. a. In the IS-LM-BP model, explain why the BP (balance of payments) curve is upward sloping when capital mobility is imperfect. What is the effect on the BP curve of an appreciation of the exchange Iate'iI How would your answers differ in the case of perfect capital mobility?I b. Suppose that the domestic economy is increasingly perceived by foreign investors as a isafe haven' for their wealth. Foreign investors thus want to purchase more domestic assets, so all else equal, capital inflows rise. Assuming the economy has a exible exchange rate, nd the effects of these capital inows on output, the current account, and national saving. c. Find what difference a policy of xing the exchange rate would make when faced with increased capital inows. Suppose the central bank would like to stabilize output, avoiding both recessions and booms. What type of exchange-rate policy would you recommend? Justify your