Figure 30-8

-Refer to Figure 30-8.The graph above depicts supply and demand for British pounds during a trading day,where the quantity is millions of pounds.In order to support a fixed exchange rate of $2.00 per pound,the U.S.central bank must

Question

Figure 30-8
 
-Refer to Figure 30-8.The graph above depicts supply and demand for British pounds during a trading day,where the quantity is millions of pounds.In order to support a fixed exchange rate of $2.00 per pound,the U.S.central bank must

Quizplus · Accepted Answer

To maintain a fixed exchange rate of $2.00 per pound, the U.S. central bank must buy British pounds when there is excess supply (above 1.8 million pounds) and sell pounds when there is excess demand (below 0.6 million pounds). The intersection of the supply and demand curves occurs at a quantity of 1.2 million pounds, which represents the equilibrium exchange rate. Therefore, the U.S. central bank needs to buy 1.2 million pounds every trading day in order to maintain the fixed exchange rate.

Figure 30-8 -Refer to Figure 30-8.The Graph Above Depicts Supply and Demand