Scenario: Gizmovia II The Republic of Gizmovia wants to maintain the exchange rate of its currency, the gizmo, at $0.50, but the current exchange rate for the gizmo is $0.75. At the target rate of $0.50:

Question

Quizplus · Accepted Answer

At the target rate of $0.50, the price of gizmo is lower than the current exchange rate of $0.75. This means that people will demand more gizmos as they are cheaper, but suppliers will not be willing to supply as much gizmos as they would earn less profit. Therefore, there will be a shortage of gizmos at the target rate of $0.50.

Scenario: Gizmovia II the Republic of Gizmovia Wants to Maintain