Exhibit 20-8
-Exhibit 20-8 shows the market for euros in the US. Initially the demand for euros is represented by D₁ and the supply of euros is represented by S₁. Equilibrium in the market for euros is at point A. In response to an increase in the income of US consumers the equilibrium moves to point D and the dollar ________.

Question

Exhibit 20-8

-Exhibit 20-8 shows the market for euros in the US. Initially the demand for euros is represented by D₁ and the supply of euros is represented by S₁. Equilibrium in the market for euros is at point A. In response to an increase in the income of US consumers the equilibrium moves to point D and the dollar ________.

Quizplus · Accepted Answer

An increase in the income of US consumers will lead to an increase in demand for euros, shifting the demand curve to the right from D₁ to DS2U2B11S2U2B0. This will lead to a new equilibrium at point D where the exchange rate is higher (more dollars required to purchase one euro) than at point A. Therefore, the dollar depreciates in value.

Exhibit 20-8 -Exhibit 20-8 Shows the Market for Euros in the US