Q2: A small Asian economy runs a current account deficit and it is subjected to a capital flight. Its central bank has abandoned its fixed exchange rate regime. Initially, assume its labour market clears, retaining full employment. The central bank fully offsets the financial outflow by running down official foreign reserves (R) sufficiently to prevent the home long yield from rising. a) Use diagrams to illustrate the effects of this shock and its policy response on overall economic performance. b) Use a sketch of the balance sheet of the central bank to aid in your use of the diagrams to assess the effects on the nominal money supply, MS, the price level, PY, and the nominal exchange rate, E. Briefly explain your results. c) Use your sketch of the central bank's balance sheet to discuss how it can "sterilize" the R to avoid any unattractive consequences for overall economic performance. d) Indicate whether a monetary contraction or a monetary expansion is needed and explain why.