Consider a decrease in consumption by U.S. consumers (due to fear of an impending recession).

a. Use the ISLM and FX diagrams with the U.S. as the home country to show what happens in the U.S. Draw up the shock and label what happens to the interest rate, the exchange rate, output, and explain what happens to the trade balance

b.Assume Congress is deadlocked and will not pass any fiscal policies and you are in charge of the central bank. What would you do? What would it move on the graph above (just state it, don't have to redraw). What will happen to Y, i, and E