Figure 30-8
-Refer to Figure 30-8. The equilibrium exchange rate is at A, $1.25/euro. Suppose the European Central Bank pegs its currency at $1.00/euro. At the pegged exchange rate

Question

Figure 30-8 
-Refer to Figure 30-8. The equilibrium exchange rate is at A, $1.25/euro. Suppose the European Central Bank pegs its currency at $1.00/euro. At the pegged exchange rate

Quizplus · Accepted Answer

If the European Central Bank pegs the euro at $1.00/euro, which is below the equilibrium rate of $1.25/euro, there will be a higher demand for euros than supply, creating a shortage. The shortage is equal to 500 million euros.

Figure 30-8 -Refer to Figure 30-8. the Equilibrium Exchange Rate Is at Rate