The Following Figure Shows the Equilibrium in the Foreign Exchange

question 138

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 government of China wants to keep the exchange rate below E yuan per dollar,________.

• A) it will have to sell both dollars and yuan
• B) it will have to buy both dollars and yuan
• C) it will have to buy dollars and sell yuan
• D) it will have to buy yuan and sell dollars

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Definitions:

Nonrival Consumption

A situation where one individual's consumption of a good does not reduce the amount available for consumption by others.

Private Goods

Goods that are excludable and rivalrous in consumption, meaning they can only be used by one person at a time.

Rival Consumption

A situation where the consumption of a good or service by one person reduces its availability for consumption by another person.

Excludable

A characteristic of a good or service that means it can be limited to only paying customers or those who meet certain criteria.