The Figure Given Below Depicts the Demand and Supply of Brazilian

question 48

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 36.1 In the figure:
D₁ and D₂: Demand for Brazilian reals
S₁ and S₂: Supply of Brazilian reals
Refer to Figure 36.1.Suppose the initial equilibrium exchange rate is 10 pesos per real.A decrease in the Mexican demand for Brazilian coffee, other things equal, is most likely to result in a new equilibrium exchange rate of:

• A)6 pesos per real and an equilibrium quantity of 200 Brazilian reals.
• B)6 pesos per real and an equilibrium quantity of 250 Brazilian reals.
• C)8 pesos per real and an equilibrium quantity of 150 Brazilian reals.
• D)8 pesos per real and an equilibrium quantity of 100 Brazilian reals.
• E)10 pesos per real and an equilibrium quantity of 200 Brazilian reals.

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Definitions:

Law of Conservation

A principle stating that in a closed system, mass (in classical physics) or mass and energy (in quantum physics), cannot be created or destroyed, but only transformed or transferred.

Mass

Mass is a property of physical objects that quantifies the amount of matter within them, offering resistance to acceleration when a force is applied.

Mercury (II) Oxide

A red or orange solid compound that is formed by the oxidation of mercury, used in the production of mercury as it decomposes to mercury and oxygen when heated.

Sealed System

A closed environment where no matter is allowed to enter or leave, typically used in reference to thermodynamic systems.