The Figure Given Below Depicts the Demand and Supply of Brazilian

question 81

Multiple Choice

The figure given below depicts the demand and supply of Brazilian reals in the foreign exchange market. Assume that the market operates under a flexible exchange rate regime.Figure 22.1
In the figure:
D₁ and D₂: Demand for Brazilian reals
S₁ and S₂: Supply of Brazilian reals

-Refer to Figure 22.1. Assume that the initial equilibrium exchange rate is 8 Mexican pesos per Brazilian real and 150 brazilian reals are traded in the market. Suppose, there is an increase in the Brazilian demand for Mexican exports. Other things remaining equal, which of the following can be concluded?

• A)The demand curve for Brazilian reals will shift to the the right.
• B)The supply curve of Brazilian reals will shift to the the right.
• C)The Mexican pesos will depreciate in value.
• D)The Brazilian reals will appreciate in value.
• E)Around 100 Brazilian reals will be traded in the forex market.

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Definitions:

Quantity Consumers

Refers to the number of individual buyers or units purchased in the market.

Income Effect

Refers to the change in the quantity of a product demanded by consumers due to a change in their income.

Price Sensitivity

The degree to which the price of a product or service affects consumers' purchasing behaviors or demand for that product or service.

Elastic

Describes a situation in economics where the demand or supply for a product changes significantly when its price changes.