The Figure Given Below Depicts the Equilibrium in the Foreign

question 135

Multiple Choice

The figure given below depicts the equilibrium in the foreign exchange market.
Figure 13.1

-Refer to Figure 13.1. If the current equilibrium exchange rate is E₁ what action would the Fed have to take to achieve a target exchange rate of E₂?

• A) Sell (Q₂ - Q₁) amount of U.S. dollars.
• B) Buy (Q₁ - Q₃) amount of U.S. dollars.
• C) Buy (Q₂ - Q₃) amount of U.S. dollars.
• D) Buy (Q₂ - Q₁) amount of U.S. dollars.
• E) Sell (Q₁ - Q₃) amount of U.S. dollars.

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