Figure 30-4

-Refer to Figure 30-4. The equilibrium exchange rate is originally at A,$1.25/euro.Suppose the European Central Bank pegs its currency at $1.00/euro.Speculators expect that the value of the euro will rise and this shifts the demand curve for euro to D₂.If the European Central Bank abandons the peg,the equilibrium exchange rate would be

Question

Figure 30-4
 
-Refer to Figure 30-4. The equilibrium exchange rate is originally at A,$1.25/euro.Suppose the European Central Bank pegs its currency at $1.00/euro.Speculators expect that the value of the euro will rise and this shifts the demand curve for euro to D₂.If the European Central Bank abandons the peg,the equilibrium exchange rate would be

Quizplus · Accepted Answer

If the European Central Bank abandons the peg and the demand curve shifts to D₂, the equilibrium exchange rate would rise to $1.50/euro, reflecting the new demand conditions.

Figure 30-4 -Refer to Figure 30-4. the Equilibrium Exchange Rate Is Originally