The diagram below represents the exchange market position of the United States in trade with the United Kingdom.Starting at the equilibrium exchange rate of $3 per pound,suppose the demand for pounds rises from D0 to D1.
Figure 17.1 Foreign Exchange Market

-Refer to Figure 17.1.Under a fixed exchange rate system,U.S.monetary authorities would have to supply 8 million pounds in exchange for dollars to keep the exchange rate at $3 per pound.

Question

The diagram below represents the exchange market position of the United States in trade with the United Kingdom.Starting at the equilibrium exchange rate of $3 per pound,suppose the demand for pounds rises from D0 to D1.
Figure 17.1 Foreign Exchange Market
 
-Refer to Figure 17.1.Under a fixed exchange rate system,U.S.monetary authorities would have to supply 8 million pounds in exchange for dollars to keep the exchange rate at $3 per pound.

Quizplus · Accepted Answer

Under a fixed exchange rate system, the monetary authorities must intervene in the foreign exchange market to maintain the exchange rate at the desired level. In this case, the U.S. monetary authorities would have to supply 8 million pounds in exchange for dollars to keep the exchange rate at $3 per pound.

The Diagram Below Represents the Exchange Market Position of the United