The Figure Given Below Depicts the Foreign Exchange Market for British

question 109

Multiple Choice

The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 21.2 Refer to Figure 21.2.Suppose the British central bank is committed to maintaining an exchange rate of £1 = $1.50, but there is a permanent shift in supply from S₁ to S₃.According to the Bretton Woods agreement:

• A)the pound should be devalued.
• B)the dollar should be devalued.
• C)the British central bank should buy pounds in exchange for dollars.
• D)the British central bank should encourage speculation.
• E)the Fed should intervene to maintain the exchange rate of £1 = $1.

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Definitions:

Agriculture Subsidies

Government payments to farmers to supplement their income, manage the supply of agricultural commodities, and influence the cost and supply of such goods.

Social Security

A governmental program designed to provide financial support to individuals during retirement, disability, or unemployment.

Medicare

A federal health insurance program in the United States for people aged 65 and older, and for some younger people with disabilities.

Government Size

Refers to the scope, scale, and range of activities and services provided by a government, including its regulatory and fiscal operations.