Using a graphical approach, consider the effect of an increase in the world interest rate from r' to r>r. Suppose that the currency is pegged at & and that the initial nominal wage is WA. Assume further that prior to the shock the economy operates at full employment. Suppose that in response to the shock, the government subsidizes wages at the rate 71. Suppose further that 71 is smaller than the minimum subsidy that ensures full employment. Compare the equilibrium under the insufficient wage subsidy to the one associated with the minimum wage subsidy that ensures full employment. In particular, discuss possible differences in the equilibrium levels of employment, the nominal price of nontradables, the nominal wage, and the relative price of nontradables.