"Suppose the market treats domestic assets and foreign assets as imperfect substitutes and domestic assets are perceived to be riskier. Recently, the (domestic) government passes a new legislation that strengthens the lending standard and requirements the financial institutions must follow. Investors react to this legislation positively as they believe it would provide additional confidence to the country's financial system. According to the DD-AA model, this change lead to a drop in output but has no impact on the balance of payments." True/False/Uncertain, explain and support your answer with ONE DD-AA diagram.

Note: Compare your answer to initial equilibrium and only the first diagram will be graded. Also, once the legislation has been passed, it will not be reserved in the future.