The Figure Given Below Shows the Demand Curves for Dollars

question 46

Multiple Choice

The figure given below shows the demand curves for dollars arising out of Thai demand for U.S. goods and services and the supply of dollars arising out of the U.S. demand for Thai goods, services, and financial assets. D₁ and S₁ are the original demand and supply curves.?Figure 18.2

-Refer to Figure 18.2. Assume that the foreign exchange market is initially at equilibrium when the demand and supply curves are D₁ and S₁ respectively. When the demand curve shifts from D₁ to D₂, the Thai government intervenes to restore the original equilibrium. If Figure 18.2 describes these changes, which of the following will be true?

• A) The baht depreciates slightly, as the equilibrium exchange rate goes down from E to F.
• B) The baht depreciates, as the equilibrium exchange rate goes up from E to G.
• C) The baht appreciates, as the equilibrium exchange rate goes down from E to D.
• D) The equilibrium exchange rate goes up from D to G.
• E) The baht appreciates slightly, as the equilibrium exchange rate goes up from E to F.

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