Problem
Use the open-economy IS LIM-FE model (assume a Keynesian model) is explain and illustrate how a negative demand shock (e.g., a decrease in consumer spending) in the U.S. gats transmitted to foreign economies. What will happen to output, employment, the real interest rate, and the price level in both the domestic (U.S.) and foreign economy as a result of the decrease in consumer spending in the U.S.? What happens to net exports and the nominal exchange rate? Explain fully and illustrate with the appropriate graphs.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.