Figure 19.5
-From Figure 19.5 above, if the U.S. fixes the exchange rate at $1.25 per euro, then the U.S experiences:

Question

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If the U.S. fixes the exchange rate at $1.25 per euro, it means that the U.S. government commits to buying or selling euros at this fixed exchange rate. This will lead to a balance of payments surplus as more foreign currency flows into the U.S. than out of it, helping to stabilize the value of the dollar. However, this may also lead to a potential capital account deficit if there is an excessive inflow of foreign investment seeking to take advantage of the fixed exchange rate.

Figure 19.5 -From Figure 19.5 Above, If the U.S. Fixes the Exchange