The figure given below shows the demand curves for dollars arising out of Thai demand for U.S. goods and services and the supply of dollars arising out of the U.S. demand for Thai goods, services, and financial assets. D1 and S1 are the original demand and supply curves. Figure 18.2 -Refer to Figure 18.2. Suppose investors predict that the value of Thai assets will decrease in the near future. This affects the current equilibrium exchange rate. To restore the original equilibrium, the Thai government intervenes in the foreign exchange market. How will this government action appear on the graph? A) As a shift in the demand curve from D₂ to D₁ B) As a shift in the demand curve from D₁ to D₃ C) As a shift in the supply curve from S₁ to S₃ D) As a shift in the supply curve from S₁ to S₂ E) As a shift in the demand curve from D₂ to D₃

Question

Quizplus · Accepted Answer

The Thai government would sell foreign reserves to buy Thai currency, increasing the supply of foreign currency and shifting the supply curve from S1 to S2 to restore equilibrium.

The Figure Given Below Shows the Demand Curves for Dollars