On a foreign exchange diagram of the equilibrium exchange rate, there is equilib
ID: 1172876 • Letter: O
Question
On a foreign exchange diagram of the equilibrium exchange rate, there is equilibrium at AUD 0.94 per USD. If the actual exchange rate is AUD/USD0.90 at AUD 0.90, there would be excess _____ the dollar and the AUD dollar would _____ in the return to equilibrium.
A.
demand for, appreciate
B.
supply of, appreciate
C.
demand for, depreciate
D.
supply of, depreciate
On a foreign exchange diagram of the equilibrium exchange rate, there is equilibrium at AUD 0.94 per USD. If the actual exchange rate is AUD/USD0.90 at AUD 0.90, there would be excess _____ the dollar and the AUD dollar would _____ in the return to equilibrium.
A.
demand for, appreciate
B.
supply of, appreciate
C.
demand for, depreciate
D.
supply of, depreciate
Explanation / Answer
Answer : B. supply of , appreciate
=> This is because when there is a excess supply of USD, the USD is being sold at lower level of AUD. This makes higher demand of the USD at lower price of the AUD and makes the equilibrium to appreciate.
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