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a) (30 points total - 10 points each diagram) Draw three diagrams with an IS - LM
diagram on the top left, a domestic return - foreign return diagram on the right,
and a money market diagram on bottom left (as we did in the lectures). Begin at
point A and let the central bank (CB) tighten to fight inflation/over heating so that
interest rates rise. Assume flexible exchange rates and sticky prices (as in the
lesson) and label the new equilibrium, after the CB tightens as point B.

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