Using diagrams analyze the impact on domestic Y and i of the following

independent shocks in the Fleming-Mundell model.

(10) a. Risk in the foreign economy rises. Assume the exchange rate

is fixed and capital is perfectly mobile. Also state the long run effect on

domestic central bank reserves of foreign currency.

(5) b. Foreign consumers think domestic products attain a higher quality

than before. Assume the exchange rate is floating and capital is imperfectly

mobile.