-If the exchange rate between the dollar and Japanese yen is below the equilibrium exchange rate, there will be a_________ of dollars, and the exchange rate will_________ .
A) surplus; fall to the equilibrium level
B) shortage; rise to the equilibrium level
C) shortage; change only when the supply curve shifts leftward
D) surplus; rise to the equilibrium level

Question

-If the exchange rate between the dollar and Japanese yen is below the equilibrium exchange rate, there will be a_________ of dollars, and the exchange rate will_________ .
A) surplus; fall to the equilibrium level 
B) shortage; rise to the equilibrium level 
C) shortage; change only when the supply curve shifts leftward 
D) surplus; rise to the equilibrium level

Quizplus · Accepted Answer

When the exchange rate is below the equilibrium level, there is a shortage of dollars because the demand for dollars exceeds the supply at that rate. As a result, the exchange rate will rise to reach the equilibrium level where supply equals demand.

-If the Exchange Rate Between the Dollar and Japanese Yen