Figure 19.5
-From Figure 19.5 above, suppose the U.S. is currently fixing its exchange rate at $1.25 per euro. If the U.S. wants to attain equilibrium in the foreign exchange market, it must:

Question

Quizplus · Accepted Answer

The U.S. is currently fixing its exchange rate at $1.25 per euro, which means that the U.S. dollar is overvalued in relation to the euro. In order to attain equilibrium in the foreign exchange market, the U.S. would need to revalue its currency, which means increasing the value of the dollar in relation to the euro. This would make U.S. goods more expensive for foreigners, reducing U.S. imports and increasing U.S. exports, thus reducing the U.S. trade deficit.

Figure 19.5 -From Figure 19.5 Above, Suppose the U.S. Is Currently Fixing