Figure 30-7

-Refer to Figure 30-7.Under the Bretton Woods System of exchange rates,if the par exchange rate was $2 per pound in the figure above,and equilibrium persisted at $3,then this was evidence of ________ and the IMF would allow a ________ in the exchange rate?

Question

Figure 30-7
 
-Refer to Figure 30-7.Under the Bretton Woods System of exchange rates,if the par exchange rate was $2 per pound in the figure above,and equilibrium persisted at $3,then this was evidence of ________ and the IMF would allow a ________ in the exchange rate?

Quizplus · Accepted Answer

Under the Bretton Woods System, a persistent disequilibrium in the exchange rate was considered evidence of fundamental disequilibrium. In this case, the equilibrium exchange rate was $3, which was higher than the par exchange rate of $2. This indicated that the pound was undervalued, and the IMF would allow a revaluation of the pound to bring it closer to its equilibrium value.

Figure 30-7 -Refer to Figure 30-7.Under the Bretton Woods System of Exchange