The following 4 equations describe the main behavioral equation for a small open economy with flexible exchange rates: MYP =5 4 0.6Y 100r* Real Money Demand C9 =30+ 0.5(Y = T) - 200r* Desired consumption I* = 40 - 200+ Desired investment NX9=31-0.1Y - Se Desired Net Exports A) Use the equations above to derive the IS and LM curves for this economy, with the world real interest rate (r*w) on the left-hand side. Find the value of the real world interest rate and the real exchange rate, using the following: Y=150; M/P = 90; G=20; and the government has a deficit of 10. Based on your results, is the economy using foreign savings? B)The nominal money supply (M) is 135 and the foreign price level (Pfor) is 1. Use this information to find the nominal exchange rate (enom). C) Suppose that the economy is hit by a negative shock that lowers net exports. In particular, the constant term in the net-exports equation falls from 31 to 30. How will the economy adjust? In particular, what will happen to both the real and nominal exchange rates in the short and long run? D) Start again with the constant term in the net exports equation back at 31 and assume that, due to innovations in the banking system, individuals in this economy decide to hold fewer money balances in relation to and r+x"e and this is reflected in a drop in the constant term in the money demand equation from 5 to 4. Use the model to find the short-run effects on , e, and P and then the long-run effects