Suppose that the price level relevant for money demand includes the price of imported goods and that the price of imported goods depends on the exchange rate. That is, the money market is described by PM=L(r,Y) where P=Pd+(1)Pf/e where Pd is the price of domestic goods, Pf is the price of foreign goods measured in the foreign currency, and e is the exchange rate. Thus, Pff is the price of foreign goods measured in the domestic currency. The parameter is the share of domestic goods in the price index P. Assume that the price of domestic goods Pd and the price of foreign goods measured in foreign currency Pf are sticky in the short run. (Note: Since a higher exchange rate makes foreign goods cheaper, to the extent that people consume foreign goods (given by the fraction 1 ), the price level P that is relevant in the money market falls. The lower price level increases the supply of real money balances M/P. And to maintain equilibrium in the money market, income must rise, so money demand increases as well. Hence, the LM curve is now upward sloping rather than vertical, as in the standard Mundell-Fleming model.) a. In the accompanying diagram, shift the IS curve, the LM curve, or both to show the effect of an expansionary fiscal policy under a floating exchange rate system. b. As a result of the fiscal expansion, the exchange rate , and aggregate income c. In the standard Mundell-Fleming model, as a result of a fiscal expansion, the exchange rate , and aggregate income d. Suppose political instability increases the country risk premium and thus the interest rate. Again, assuming a floating exchange rate system, in the accompanying diagram, shift the IS curve, the LM curve, or both to show the effect of this development. e. As a result of the political instability, the exchange rate , and income