Figure 11-4

-Refer to Figure 11-4.In Panel (b) , assume that the price of bonds rises from P₁ to P₂.Now, in Panel (c) , the higher price of bonds will _______ the demand for and _______ the supply of dollars and cause the exchange rate to ______.

Question

Figure 11-4
Figure 11-4 -Refer to Figure 11-4.In Panel (b) , assume that the price of bonds rises from P<sub>1</sub> to P<sub>2</sub>.Now, in Panel (c) , the higher price of bonds will _______ the demand for and _______ the supply of dollars and cause the exchange rate to ______. A) reduce; increase; increase B) increase; increase; fall C) increase; reduce; increase D) reduce; increase; fall

Figure 11-4 -Refer to Figure 11-4.In Panel (b) , assume that the price of bonds rises from P<sub>1</sub> to P<sub>2</sub>.Now, in Panel (c) , the higher price of bonds will _______ the demand for and _______ the supply of dollars and cause the exchange rate to ______. A) reduce; increase; increase B) increase; increase; fall C) increase; reduce; increase D) reduce; increase; fall

-Refer to Figure 11-4.In Panel (b) , assume that the price of bonds rises from P₁ to P₂.Now, in Panel (c) , the higher price of bonds will _______ the demand for and _______ the supply of dollars and cause the exchange rate to ______.

Quizplus · Accepted Answer

According to the graph, an increase in the price of bonds will lead to a reduction in the demand for dollars (shift from D1U1B1 to D1U1B2) and an increase in the supply of dollars (shift from S1U1B1 to S1U1B2). This will cause the exchange rate to fall (shift from E1U1B1 to E1U1B2). Therefore, option D is the correct answer.

Figure 11-4 -Refer to Figure 11-4.In Panel (B), Assume That the Price