Use the $IS-LM$ model and create $an$ enlarged version $of$ Figure $1to$ answer the following

question. Suppose $in$ period $0$ that Qatar $(QAT)is$ initially $at$ full employment. Its

currency $(the$ Qatari riyal, QAR$)is$ pegged $to$ the $US$ dollar $so$ that $3\mathrm{.}65$ QAR are

convertible into $1$ USD. Then, $in$ period $1$ the Qatari government plans $to$ temporarily

reduce spending during the year.

$(a)$ Label the initial curves $as(I{S}_0,L{M}_0,UI{P}_0).$ Indicate the initial equilibrium

outcomes for output, the interest rate, the exchange rate and label the points

$(Y_0,R_0,E_0).$

$(b)$ Short$-$run: Using the same graph from part $(a),$ label the new curves $in$ the short

run $(I{S}_1,L{M}_1,UI{P}_1)\{$:$Y_1,R_1,E_1).$

$(c)Is$ Qatar's current account $in$ the short run $(period1)$ higher $or$ lower than what

$it$ was $in$ period $0?In$ one sentence, explain why.

$(d)$ Long$-$run: Using the same graph from parts $(a)$ and $(b),$ label the new curves

$in$ the long run $(I{S}_2,L{M}_2,UI{P}_2),$ reflecting any shift, and indicate the long$-$run

equilibrium outcome $(Y_2,R_2,E_2).$