Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets. What would happen to the dollar?

a. Suppose that foreigners had reduced confidence in U.S. financial institutions and believed that privately issued U.S. bonds were more likely to be defaulted on. What would happen in the market for foreign currency exchange?

b. Imagine that in 2019 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. Which curve shifts and in which direction?

c. Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of confidence in policymakers, people become pessimistic regarding the future and retain that level of pessimism for some time. In the short run what happens to the price level and real GDP?