Figure 17-4

-In Figure 17-4,the equilibrium price of Dominican pesos is Pₑ.If the Dominican Republic government fixes the price of foreign currency in terms of domestic currency at Pf (below equilibrium),what does the quantity Qd through Qs represent?

Question

Figure 17-4
 
-In Figure 17-4,the equilibrium price of Dominican pesos is Pₑ.If the Dominican Republic government fixes the price of foreign currency in terms of domestic currency at Pf (below equilibrium),what does the quantity Qd through Qs represent?

Quizplus · Accepted Answer

If the government fixes the price of foreign currency below the equilibrium price, it means that the price is lower than what it should be according to market forces. Therefore, the quantity of foreign currency demanded (Qd) will be greater than the quantity supplied (Qs), resulting in a shortage of foreign exchange. This shortage can lead to difficulties in paying for imports, which would affect the quantity of Dominican imports.

Figure 17-4 -In Figure 17-4,the Equilibrium Price of Dominican Pesos Is Pₑ.If