Refer to the Graph Above, Which Shows a Change in the Demand

question 10

Multiple Choice

Refer to the graph above, which shows a change in the demand for pounds from D to D'. Under a system of flexible exchange rates, the:

• A) Price of a pound will increase to $3
• B) Price of a dollar will increase to 3 pounds
• C) Shortage equal to ab would be met using international monetary reserves
• D) Payment deficit will cause changes in domestic price and income levels, shifting demand to the left, supply to the right, and reestablishing the original exchange rate