Let foreign prices be fixed atP_f= 1 and the nominal exchange rateebe flexible. Using the above model, and rounding to5 decimal places, please answer the following questions:

CASE A.Assume that this is a classical economy with full flexible domestic prices and output is fixed at the full employment levelY=Y_F= 2000.Solve forPfor the case below:

No shocks= 0, and benchmark nominal money supplyM=M= 500.

Question 1. Monetary Policy in a Small Open Economy with an adverse shock. Consider the following model of a small open economy Y = 1000 s 1000i + 5.2% (1) IS Equation 5' 0.5 (1 + 5) + 0.001Y 0.005 g (2) LM Equation \"1;: if = 0.02 (3) BP=0 locus