Figure 19-8
-Refer to Figure 19-8.The equilibrium exchange rate is at A,$1.25/euro.Suppose the European Central Bank pegs its currency at $1.00/euro.Speculators expect that the value of the euro will rise and this shifts the demand curve for euro to D2.After the shift,

Question

Figure 19-8 
-Refer to Figure 19-8.The equilibrium exchange rate is at A,$1.25/euro.Suppose the European Central Bank pegs its currency at $1.00/euro.Speculators expect that the value of the euro will rise and this shifts the demand curve for euro to D2.After the shift,

Quizplus · Accepted Answer

After the shift, the new equilibrium exchange rate is at point B, which is above the ECB's pegged rate of $1.00/euro. This results in a shortage of euros as demand exceeds supply, and the magnitude of the shortage can be found by the vertical distance between points A and B, which is 800 million. Thus, the correct answer is C.

Figure 19-8 -Refer to Figure 19-8.The Equilibrium Exchange Rate Is at A,$1.25/euro.Suppose