Paragraph Styles Adobe Acrobat 1 2 3 1) (50 points total) a) (30 points total - 10 points each diagram) Draw three diagrams with an IS - LM diagram on the top left, a domestic return - foreign return diagram on the right, and a money market diagram on bottom left (as we did in the lectures). Begin at point A and let the central bank (CB) tighten to fight inflation/over heating so that interest rates rise. Assume flexible exchange rates and sticky prices (as in the lesson) and label the new equilibrium, after the CB tightens as point B. b) (10 points) Now draw an investment demand diagram with points A and B as above. Provide the intuition as to why investment changes the way it does. c) (10 points) Using our equation for the trade balance, show how the trade balance is influenced by the contractionary monetary policy. Please be as specific as