question is listed below

Consider an economy with a floating exchange rate, where Y is real output, M is money supply, / is interest rate and P is price in the domestic economy, while /" is interest rate and * is price in the foreign economy. Denote S the exchange rate in direct terms and S' is the expectation of the future exchange rate. The initial conditions of the economy are the following: expectations are S = 13, price levels are P = P* = 1, the foreign interest rate is /* = 0.1, the domestic money supply is M = 200 and money demand is given by Y L(i. Y) = (1+1)' consumption by C = 10 + 0.5Y , investment by / = 10, government expenditures by G = 30 and net export by N X = 5(q - 1). where q = SP (a) [1 points] Compute the AA schedule. Provide intuition for the slope of this curve. (b) [1 points] Compute the DD schedule. Provide intuition for the slope of this curve. (c) [2 points] Find the equilibrium in the economy (any solution to S must be strictly positive, S > 0). (d) [2 points] Assume that there is a temporary fiscal shock such that G = 60 with respect to the economy in part (c), find the short-run equilibrium in the economy (any solution to S must be strictly positive, S > 0). Explain the intuition for the results. (e) [2 points] Assume that there is a permanent fiscal shock such that G = 60 with respect to the economy in part (c), find the short-run equilibrium in the economy (any solution to S must be strictly positive, S > 0). Explain the intuition for the results. (1) [2 points] Assume now that the domestic economy chooses to fix the exchange rate to S = 24 with respect to the economy in part (c) (G = 30), and it immediately becomes a credible exchange rate regime. What will happen to the key variables of the economy in equilibrium? Explain the intuition for the results