(a) Why is the supply of dollars upward sloping? Why is the demand for dollars downward sloping?
(b) Given the private supply and demand for the dollar shown below, if the government wants to keep the exchange rate value of the dollar at P₀ by intervening in the exchange market, what must it do?
(c) How does this action show up on the balance of payments account?
(d) At an exchange rate of P₀, does the country have a private balance of payments surplus or deficit? Or is it in balance?

Question

Quizplus · Accepted Answer

The Answer of (a) Why is the supply of dollars upward sloping? Why is the demand for dollars downward sloping? (b) Given the private supply and demand for the dollar shown below, if the government wants to keep the exchange rate value of the dollar at P₀ by intervening in the exchange market, what must it do? (c) How does this action show up on the balance of payments account? (d) At an exchange rate of P₀, does the country have a private balance of payments surplus or deficit? Or is it in balance?

(A) Why Is the Supply of Dollars Upward Sloping? Why