Answer
a) The demand for U.S products decreases, so the net exports would also decrease. The decreased net exports would also decrease the demand for dollars, thus decreasing the exchange rate. (Please see the three graphs that show the shift to the left of the demand curve.)
Work Step by Step
b) Please see the three graphs above.
c) This is not consistent with the model. The change in the U.S. goods doesn't lead to the increased trade deficit. Our standard of living might decrease. We would have a lower exchange rate, so we would be able to purchase fewer goods (and have a decreased standard of living).
