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

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

Choice 2 shows a country with an undervalued currency, as the exchange rate is below the equilibrium level. Additionally, there is a balance of trade surplus shown by the excess supply of the country's currency in the foreign exchange market.

Figure 19-3 Of the Graphs in Figure 19-3, Where the Dotted Line