The Following Figure Shows the Equilibrium in the Foreign Exchange

question 23

Multiple Choice

The following figure shows the equilibrium in the foreign exchange market where dollars are exchanged for yuan.

-Refer to the figure above.If the exchange rate is fixed above E yuan per dollar,________.

• A) both the yuan and the dollar are overvalued
• B) both the yuan and the dollar are undervalued
• C) the dollar is overvalued and the yuan is undervalued
• D) the dollar is undervalued and the yuan is overvalued

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