Figure 19-4
-Refer to Figure 19-4.The equilibrium exchange rate is originally at A,$3/pound.Suppose the British government pegs its currency at $4/pound.Speculators expect that the value of the pound will drop and this shifts the demand curve for pounds to D₂.If the government abandons the peg,the equilibrium exchange rate would be

Question

Figure 19-4

-Refer to Figure 19-4.The equilibrium exchange rate is originally at A,$3/pound.Suppose the British government pegs its currency at $4/pound.Speculators expect that the value of the pound will drop and this shifts the demand curve for pounds to D₂.If the government abandons the peg,the equilibrium exchange rate would be

Quizplus · Accepted Answer

With the new demand curve (D₂) and the original supply curve (hours of work per month), the new equilibrium exchange rate is at point C, which is lower than the original equilibrium exchange rate at point A. Therefore, the answer is C, $2/pound.

Figure 19-4 -Refer to Figure 19-4.The Equilibrium Exchange Rate Is Originally at Is