Question B3 [2 points]. Examine, analytically and graphically in a diagramme drawn in the PD-z space, the effects of the increase in i*, and show that in the new equilibrium domestic prices can be either higher or lower than at the initial equilibrium. Let E denote the new equilibrium point, corresponding to the intersection of the new curves FG and XX, characterized by higher domestic prices. The government would like to bring the economy back to its initial equilibrium position, point E, corresponding to the intersection of the initial curves FG and XX.