Figure 19-3

-Of the graphs in Figure 19-3, where the dotted line shows the actual exchange rate, which one shows a country with an undervalued currency and a balance of trade surplus?

Question

Figure 19-3
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-Of the graphs in Figure 19-3, where the dotted line shows the actual exchange rate, which one shows a country with an undervalued currency and a balance of trade surplus?

Quizplus · Accepted Answer

Graph 2 shows an undervalued currency as the exchange rate is lower than the equilibrium rate. It also shows a balance of trade surplus as the quantity of currency demanded is greater than the quantity supplied at the given exchange rate, indicating that the country is exporting more goods than it is importing.

Figure 19-3 ​

Figure 19-3