Use the Following Diagram to Answer the Following Questions

question 68

Multiple Choice

Use the following diagram to answer the following questions.

-Refer to Diagram 18-1. Suppose that the demand for dollars is initially represented by D₁ and the supply of dollars is represented by S₂. If the inflation rate were to decrease, the effect would:

• A) decrease the supply of dollars to S₁, thereby increasing the exchange rate to E₃.
• B) decrease the supply of dollars to S₁ and increase the demand for dollars to D₂, thereby increasing the exchange rate to E₄.
• C) increase the demand for dollars to D₂, thereby increasing the exchange rate to E₂.
• D) increase the supply of dollars and decrease the demand for dollars, thereby raising the exchange rate.

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