Use the Following to Answer Questions

question 186

Multiple Choice

Use the following to answer questions .
Exhibit: A Fixed Exchange Rate
-(Exhibit: A Fixed Exchange Rate) Suppose the exchange rate between the dollar and the British pound is fixed at £0.3 per dollar. Now suppose U.S. residents choose to purchase more British goods and services. What happens in the foreign exchange market?

• A) The demand curve for dollars increases, and the equilibrium exchange rate for the dollar (in terms of pounds) rises.
• B) The supply curve for dollars increases, and the equilibrium exchange rate for the dollar (in terms of pounds) falls.
• C) The demand curve for dollars decreases, and the equilibrium exchange rate for the dollar (in terms of pounds) falls.
• D) The supply curve for dollars decreases, and the equilibrium exchange rate for the dollar (in terms of pounds) rises.

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