7.Consider a small open economy that uses peso as a national currency and allows it to float against foreign currencies. Suppose that the price level includes the peso prices of domestic goods and the peso equivalent of the dollar prices of imported goods.
(a) Use graphical analysis to illustrate the e§ects of a Öscal contraction on the exchange rate and aggregate income
(b) Use graphical analysis to illustrate the e§ects of a decrease in the coun- tryís risk premium on the exchange rate and aggregate income
8.[Chapter 13] Analyze the e§ect of the following events on the exchange rate and aggregate income in a small open economy under both áoating and Öxed exchange rate regimes:
(a) widespread credit card frauds.
(b) a shift in tastes that favors foreign-produced goods.