Question 3 Net exports Function Consider the following equation: = NX (E) = 5 - I(r*) This equation is used to draw the diagram illustrating the foreign exchange market, where there is a negative relationship between NX and e; and S-I(r*) is perfectly inelastic. Here NX is net exports, & is the exchange rate, S represents the level of savings in the economy, I represent the level of investment in the economy, and r is the interest rate. a. Use a carefully labeled diagram to illustrate the effect of a contractionary fiscal policy at home on savings, interest rate, net capital outflow and the exchange rate (10 marks) b. Use a carefully labeled diagram to illustrate the effect of a contractionary fiscal policy abroad on savings, interest rate, net capital outflow and the exchange rate (10 marks