Answer all questions clearly and succinetly.Provide intermediate derivations whereneeded,but do not exceed 9 pages,graphs ineluded,in your answers.Consider a small open economy producing a(composite)good which is an imperfectsubstitute for a foreign good.There

are five categories of agents:firms,houscholds,commercialbanks,the central bank,and the goverment.The world price of the foreign good is taken asexogenous and normalized to unity.The nominal exchange rate is fixed at E.The supply of the domestic good is given by(1)Y=YPD).where p is the price of the domestic good and Y"=dY"/dpb>0.

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