Which statement is consistent with a below-the-equilibrium exchange rate of the dollar?
A) The quantity of dollars supplied is less than the quantity demanded, and the dollar will appreciate.
B) The quantity of dollars supplied is less than the quantity demanded, and the dollar will depreciate.
C) The quantity of dollars supplied is greater than the quantity demanded, and the dollar will appreciate.
D) The quantity of dollars supplied is greater than the quantity demanded, and the dollar will depreciate.

Question

Quizplus · Accepted Answer

When the exchange rate of the dollar is below the equilibrium, the quantity of dollars supplied is less than the quantity demanded. This excess demand for dollars puts upward pressure on the value of the dollar, leading to its appreciation.

Which Statement Is Consistent with a Below-The-Equilibrium Exchange Rate of the Dollar