Refer to Figure 19-4. The equilibrium exchange rate is at A, ...

[segrsyd]

Refer to Figure 19-4. The equilibrium exchange rate is at A, 3/pound. Suppose the British government pegs its currency at 4/pound. Speculators expect that the value of the pound will drop and this shifts the demand curve for pounds to D2.
 
  After the shift,
  A) there is a surplus of pounds equal to 400 million.
  B) there is a shortage of pounds equal to 600 million.
  C) there is a shortage of pounds equal to 200 million.
  D) there is a surplus of pounds equal to 600 million.
  E) there is a shortage of pounds equal to 400 million.

Question 2

Refer to Figure 17-4. Consider the shift in the short-run Phillips curves shown in the above graph. This shift may be explained by
 
  A) an increase in the expected rate of inflation from 4.0 to 5.5 percent.
  B) an increase in the natural rate of unemployment from 5.0 to 6.2 percent.
  C) either an increase in the natural rate of unemployment from 5.0 to 6.2 percent or an increase in the expected rate of inflation from 4.0 to 5.5 percent.
  D) None of the above is correct.

[wuly]

Answer to Question 1

D

Answer to Question 2

A