If the equilibrium exchange rate is 110 yen per dollar and the current exchange rate is 120 yen per dollar, then the
A)supply curve of Canadian dollars shifts rightward.
B)demand curve for Canadian dollars shifts rightward.
C)supply curve of Canadian dollars shifts leftward.
D)demand curve for Canadian dollars shifts leftward.
E)dollar will depreciate.

Question

Quizplus · Accepted Answer

The dollar will depreciate because the current exchange rate (120 yen per dollar) is higher than the equilibrium rate (110 yen per dollar), indicating that the dollar is overvalued and will likely decrease in value to reach equilibrium.

If the Equilibrium Exchange Rate Is 110 Yen Per Dollar