Figure 30-5
-Refer to Figure 30-5. The Chinese government pegs the yuan to the dollar, at one of the specified exchange rates on the graph, such that it undervalues its currency. Using the figure above, this would generate

Question

Figure 30-5 
-Refer to Figure 30-5. The Chinese government pegs the yuan to the dollar, at one of the specified exchange rates on the graph, such that it undervalues its currency. Using the figure above, this would generate

Quizplus · Accepted Answer

The Chinese government pegs the yuan to the dollar at a rate of 8 yuan per dollar, which is below the equilibrium exchange rate of 10 yuan per dollar. This undervaluation of the yuan creates a shortage of yuan, as the quantity of yuan demanded at the pegged rate (8 yuan per dollar) exceeds the quantity of yuan supplied at that rate. The shortage of yuan is equal to the horizontal distance between the demand curve and the supply curve at the pegged exchange rate, which is 400 million yuan.

Figure 30-5 -Refer to Figure 30-5. the Chinese Government Pegs the Yuan