Problem $2.(30$ points$)$

Now suppose that Macro Island is a small open economy with a fixed exchange rate. Using the

Mundell$-$Fleming model, for each of the following events, shift the relevant curves and move the

equilibrium point E from the origin to the new equilibrium to show how these events affect the

equilibrium exchange rate and income.

a$.$ The president signs a tax increase into law.

b$.$ The central bank sells bonds in open$-$market operations.

c$.$ An easing of legal restrictions makes credit cards easier to obtain, inducing people to hold

less money.

d$.$ An engineering breakthrough induces businesses to upgrade their computer systems.

e$.$ The government rescinds an import quota on goods from neighboring Micro Island.

f$.$ Fiscal austerity abroad reduces the world interest rate.