QUESTION 14 6 points Save Answer Consider the classical model of a small open economy with perfect capital mobility. Suppose domestic political stability improves and optimism about future conditions increases, causing firms to raise their investment sharply. Based on the above information, answer the following questions. a. What impact will the increase in investment demand have on the real interest rate of the small open economy? Briefly explain your answer. (2 marks) b. What impact will the increase in investment demand have on net capital outflow in the small open economy? Briefly explain your answer. (2 marks) c. Explain the long-run impact of the increase in investment demand on the real exchange rate and net exports. Briefly explain your answers by referring to the affected curves in the market for foreign exchange. (2 marks) For the toolbar, press ALT+F10 (PC) or ALT+FN+F10 (Mac). U Paragraph Arial 10pt E V A V TX