Controls on capital outflows in emerging markets could counterbalance the depreciation of a currency amid capital outflows. We examined those effects in countries with a floating exchange rate regime. See for example, the article "Turkish Lira Hits New Low in Sharp Decline," (Financial Times, August 7, 2020). That article discusses the possibility of the introduction of capital controls on capital outflows to avoid the collapse of the Turkish lira (See our analysis in ERR 3). Capital controls of the type studied are also introduced in countries that have a fixed exchange rate regime. See for example "China Clamps Down on Exodus of Cash" (WSJ, December 2, 2016) and the article entitled "China Forex Reserves Rose for Second Straight Month in March" (WSJ, April 7, 2017). Examine the effect of a permanent tax on capital outflows in a country with a fixed exchange-rate regime such as China. Pay particular attention to the evolution of the central bank's foreign exchange reserves, economic activity, and prices. Examine both the short- and the long-run equilibrium. Assume that China keeps the value of the yuan fixed. Assume China is the domestic economy. Use the AA-DD model.