Figure 159 Alt Text for Figure 15

question 225

Multiple Choice

Figure 15.9 Alt text for Figure 15.9: In figure 15.9, a graph illustrates the quantity of euros traded against the exchange rate.
Long description for Figure 15.9: The x-axis is labelled, quantity of euros traded in millions per day.The y-axis is labelled, exchange rate, Canadian dollar against the euro.A straight line supply curve, S, slopes up from the bottom left corner to the top right corner.2 straight line demand curves, D1 and D2, slope down from the top left corner to the bottom right corner.Curve D2 is plotted to the right of curve D1.The difference between the curves is indicated by a right pointing arrow.Curve S intersects curves D1 and D2 at points A (500, 1.25) and B (700, 1.50) .Point (200, 1.00) is plotted near the bottom of curve S.Point (950, 1.75) is plotted near the top of curve S.Point (500, 1.75) is plotted near the top of curve D2.Points (900, 1.25) and point (1,000, 1.00) are plotted near the bottom of curve D2.Point (200,1.75) is plotted near the top of curve D1.Point (700, 1.00) is plotted near the bottom of curve D1.All points are connected to their corresponding values on the x and y-axes with dotted lines.
-Refer to Figure 15.9.The equilibrium exchange rate is originally at A, $1.25/euro.Suppose the European Central Bank pegs its currency at $1.00/euro.Speculators expect that the value of the euro will rise, and this shifts the demand curve for euros to D₂.If the European Central Bank abandons the peg, the equilibrium exchange rate would be

• A)$1.00/euro.
• B)$1.25/euro.
• C)$1.50/euro.
• D)$1.75/euro.
• E)500 million euros.

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Definitions:

Perfectly Competitive

A market structure characterized by a large number of small firms, identical products, and free entry and exit, leading to price taker behavior.

Supply Curve

A graphical representation showing the relationship between the price of a good and the quantity of the good that sellers are willing to supply.

Upward Sloping

A term often used in economics to describe a curve or line that increases in height as it moves from left to right, indicative of a positive relationship between two variables.

Compact Disc

A physical medium for the storage and playback of digital audio and data, utilizing laser technology for reading and writing information.