3. Consider our simple Supply and Demand model of exchange rate determination. T

Question

3. Consider our simple Supply and Demand model of exchange rate determination. Think of the U.S. as the domestic country and Great Britain (GB) as the foreign country. Let "e" stand for the domestic price of one unit of the foreign currency. If we had an exogenous increase in the number of US exports GB consumers wish to buy, we would expect a. an increase (i.e., rightward shift) in the demand for £ and an increase in e. b. a decrease (i.e., leftward shift) in the demand for f and an increase in e. c. an increase in the supply of £ and an increase in e. d. a decrease in the supply of £ and an increase in e e. an increase in the supply of f and a decrease in e.

Explanation / Answer

Answer : (a) an increase (i.e., rightward shift) in the demand for £ and an increase in e.

Because of increasing domestic demand a country import from other country. This means demand curve shifts to the rightward as a result the currency of exporting country becomes strong than before. Hence option (a) is correct.

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.