Figure 15-2
-Refer to Figure 15-2. Suppose the exchange rate between the dollar and the British pound
Is fixed at £0.3 per dollar. Now suppose U.S. residents choose to purchase more British goods and services. What happens in the foreign exchange market?

Question

Figure 15-2 
-Refer to Figure 15-2. Suppose the exchange rate between the dollar and the British pound
Is fixed at £0.3 per dollar. Now suppose U.S. residents choose to purchase more British goods and services. What happens in the foreign exchange market?

Quizplus · Accepted Answer

When U.S. residents purchase more British goods and services, they need more pounds and thus supply more dollars to the foreign exchange market to get these pounds. This increases the supply of dollars, leading to a decrease in the equilibrium exchange rate of the dollar in terms of pounds.

Figure 15-2 -Refer to Figure 15-2. Suppose the Exchange Rate Between the Rate