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.

---

Definitions:

Fixed Costs

Business expenses that remain constant regardless of changes in production volume, such as rent, salaries, and loan repayments.

Variable Cost

Costs that vary in direct proportion to changes in the level of production or sales.

Fixed Costs

Expenses that do not change in proportion to the activity of a business, such as rent, salaries, and equipment leases.

Variable Cost

Costs that change in proportion to the level of activity or volume of goods produced.