In the early 1980s, the Reagan administration had very tight monetary policy (decrease in money supply), a big tax cut, and a big increase in government spending. The net effect was an increase in aggregate demand. [15 points]

a. Use well labeled diagrams for the Keynesian cross (aggregate demand and supply) money market, FX market, and IS-LM curves to show what happened to the nominal interest rate, the exchange rate, consumption, investment, government spending, and net exports.

b. What effect did this have on housing construction and the US auto industry?