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Author Question: Refer to Figure 19-10.Under the Bretton Woods System of exchange rates, if the par ... (Read 415 times)

a0266361136

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Question 1

Figure 19-8










Refer to Figure 19-8.  The equilibrium exchange rate is originally 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. If the European Central Bank abandons the peg, the equilibrium exchange rate would be


◦ $1.00/euro.
◦ $1.25/euro.
◦ $1.50/euro.
◦ $1.75/euro.

Question 2

Figure 19-10











Refer to Figure 19-10.  Under the Bretton Woods System of exchange rates, if the par exchange rate was $4 per pound in the figure above, then which of the following is true?


◦ The Bank of England would have to buy 0.7 million pounds per day with dollars.
◦ There is a shortage of pounds equal to 0.7 million.
◦ The Bank of England would have to sell 0.7 million pounds per day in exchange for dollars.
◦ The par exchange rate is below the equilibrium rate, causing a shortage of domestic currency.


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Marked as best answer by a0266361136 on Mar 16, 2019

flannelavenger

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a0266361136

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Reply 2 on: Mar 16, 2019
Great answer, keep it coming :)


adammoses97

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Reply 3 on: Yesterday
YES! Correct, THANKS for helping me on my review

 

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