The Kingdom of dreamland was once a beautiful kingdom. It is asmall open economy in the Long Run.

It can be described as:

C = 25+0.92(Y-T)

Y=6755

G=164

T=104

I=1406-13r

NX=100-10e

r*=19(you can thing of it as 19%, but use 19 in your calculations)

Today, when King Zog woke up, he was greeted by his advisor, Odval with some great news! The Kingdom of Dankmire (a much larger economy):

reducedthe world rater*=10.

Increasedit'simportof Dreamland purchases:NX= 200-10e.(the exports of Dreamland have increased)

Question 1 Looking at the events individually -look at event 1 only.Which part of the small open economy model is impacting.In your answer,identify the initial impactandshow the transmission to the final impact. (EX: if it impacts the consumption schedule, if it impacts goods and services, how does this impact? Y, C, S, I, r ....In your answer, provide the status quo and the change brought in. numerical, diagrams and interpretation are required.

Question 2 Looking at the events individually -look at event 2 only.Which part of the small open economy model is impacting.In your answer,identify the initial impactandshow the transmission to the final impact. (EX: if it impacts the consumption schedule, if it impacts goods and services, how does this impact? Y, C, S, I, r ....In your answer, provide the status quo and the change brought in. numerical, diagrams and interpretation are required.

Question 3 Combine both impacts together anddiscuss and show using diagramsthe final impact onouptutandrealexchange rateandall other aggregate variables.In your answer, provide the status quo and the change brought in. numerical, diagrams and interpretation are required.Should king Zog be happy?

Explain your answerTIP: using a table to show all answers from status quo, question 1, question 2 and question 3, would be extremely useful for students in writing our their answers.