Figure 15.9 Alt text for Figure 15.9: In figure 15.9, a graph illustrates the quantity of euros traded against the exchange rate.
Long description for Figure 15.9: The x-axis is labelled, quantity of euros traded in millions per day.The y-axis is labelled, exchange rate, Canadian dollar against the euro.A straight line supply curve, S, slopes up from the bottom left corner to the top right corner.2 straight line demand curves, D1 and D2, slope down from the top left corner to the bottom right corner.Curve D2 is plotted to the right of curve D1.The difference between the curves is indicated by a right pointing arrow.Curve S intersects curves D1 and D2 at points A (500, 1.25) and B (700, 1.50) .Point (200, 1.00) is plotted near the bottom of curve S.Point (950, 1.75) is plotted near the top of curve S.Point (500, 1.75) is plotted near the top of curve D2.Points (900, 1.25) and point (1,000, 1.00) are plotted near the bottom of curve D2.Point (200,1.75) is plotted near the top of curve D1.Point (700, 1.00) is plotted near the bottom of curve D1.All points are connected to their corresponding values on the x and y-axes with dotted lines.
-Refer to Figure 15.9.The equilibrium exchange rate is 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 euros to D₂.After the shift,

Question

Figure 15.9

Alt text for Figure 15.9: In figure 15.9, a graph illustrates the quantity of euros traded against the exchange rate.
Long description for Figure 15.9: The x-axis is labelled, quantity of euros traded in millions per day.The y-axis is labelled, exchange rate, Canadian dollar against the euro.A straight line supply curve, S, slopes up from the bottom left corner to the top right corner.2 straight line demand curves, D1 and D2, slope down from the top left corner to the bottom right corner.Curve D2 is plotted to the right of curve D1.The difference between the curves is indicated by a right pointing arrow.Curve S intersects curves D1 and D2 at points A (500, 1.25) and B (700, 1.50) .Point (200, 1.00) is plotted near the bottom of curve S.Point (950, 1.75) is plotted near the top of curve S.Point (500, 1.75) is plotted near the top of curve D2.Points (900, 1.25) and point (1,000, 1.00) are plotted near the bottom of curve D2.Point (200,1.75) is plotted near the top of curve D1.Point (700, 1.00) is plotted near the bottom of curve D1.All points are connected to their corresponding values on the x and y-axes with dotted lines.
-Refer to Figure 15.9.The equilibrium exchange rate is 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 euros to D₂.After the shift,

Quizplus · Accepted Answer

The shift in the demand curve for euros, due to speculators expecting the value of the euro to rise, creates a situation where the demand for euros exceeds the supply at the pegged exchange rate of $1.00/euro. This results in a shortage of euros, as the quantity demanded exceeds the quantity supplied. The specific quantity of the shortage (e.g., 800 million) would depend on the details provided in Figure 15.9 and the positions of the demand and supply curves after the shift.

Figure 159 Alt Text for Figure 15