Overshooting occurs when exchange rates:
A)become volatile suddenly.
B)continually diverge away from the long-run equilibrium.
C)adjust faster in the long-run than they do in the short-run.
D)adjust faster in the short-run than they do in the long-run.

Question

Quizplus · Accepted Answer

Overshooting is a phenomenon where exchange rates adjust more rapidly in the short-run than they do in the long-run, often in response to sudden changes in economic fundamentals, leading to an initial overshoot of the long-term equilibrium rate before eventually settling back.

Overshooting Occurs When Exchange Rates