Question 1
Refer to the information provided in Figure 34.4 below to answer the question(s) that follow.
Refer to Figure 34.4. The demand and supply of pounds are
D
2 and
S
2. An increase in British demand for U.S. exports,
ceteris paribus, could
◦ increase the exchange rate ($/pound) to $2.50.
◦ decrease the exchange rate ($/pound) to $1.50.
◦ decrease the equilibrium quantity from 400 to 300 pounds.
◦ increase the demand for pounds from
D2 to
D1.
Question 2
Refer to the information provided in Figure 34.4 below to answer the question(s) that follow.
Refer to Figure 34.4. The demand and supply of pounds are
D
1 and
S
1. If the demand shifts to
D
2 and supply remains unchanged at
S
1
◦ the dollar depreciates and the equilibrium quantity of pounds increases.
◦ the dollar depreciates and the equilibrium quantity of pounds decreases.
◦ the dollar appreciates and the equilibrium quantity of pounds decreases.
◦ the dollar appreciates and the equilibrium quantity of pounds increases.
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