Refer to Figure 19-8.The equilibrium exchange rate is atA, ...

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Question 1

Figure 19-8










Refer to Figure 19-8.  The equilibrium exchange rate is at A, $1.25/euro. Suppose the European Central Bank pegs its currency at $1.00/euro. At the pegged exchange rate,

◦ there is a shortage of euros equal to 500 million.
◦ there is a surplus of euros equal to 300 million.
◦ there is a shortage of euros equal to 200 million.
◦ there is a surplus of euros equal to 700 million.

Question 2

Figure 19-8










Refer to Figure 19-8. The equilibrium exchange rate is at A, $1.25/euro. Suppose the European Central Bank pegs its currency at $1.00/euro. Speculators expect that the value of the euro will rise and this shifts the demand curve for euro to D
₂. After the shift,

◦ there is a shortage of euros equal to 1,000 million.
◦ there is a surplus of euros equal to 400 million.
◦ there is a shortage of euros equal to 800 million.
◦ there is a surplus of euros equal to 500 million.

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