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AP Macroeconomics Mkt 5 D Explain Using Graphs As Appropriate How Exchange Rates Adjust to Restore Equilibrium in the Foreign Exchange Market Questions

Practise reading a currency-market graph at a disequilibrium rate, identifying excess demand or supply, and predicting which currency appreciates as equilibrium is restored.

Syllabus
Effective Fall 2022
Course
AP Macroeconomics

Exam points

  • read excess demand or supply at a stated exchange rate and predict the currency adjustment toward equilibrium

AP Macroeconomics Mkt 5 D Explain Using Graphs As Appropriate How Exchange Rates Adjust to Restore Equilibrium in the Foreign Exchange Market Questions question 1

[Maximum number: 1]

The United States and the United Kingdom are trad ing partners with flexible exchange rates. The cur rency of the United States is the dollar ($), and the currency of the United Kingdom is the pound (£). The graph provided shows the foreign exchange market for the pound. At an exchange rate of $2 per pound, which of the following will occur?

A

There will be excess supply of the dollar.

B

There will be excess demand for the pound.

C

The pound will appreciate.

D

The dollar will appreciate.

E

A £2 souvenir in Britain will cost $1 for United States tourists.

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