If the exchange rate between the dollar and Japanese yen is below the equilibrium exchange rate, there will be a ________ of dollars, and the exchange rate will ________.
A) surplus; fall to the equilibrium level
B) shortage; change only when the supply curve shifts leftward
C) shortage; rise to the equilibrium level
D) surplus; rise to the equilibrium level

Question

Quizplus · Accepted Answer

When the exchange rate is below the equilibrium, it means that the demand for dollars is higher than the supply, creating a shortage. As a result, the exchange rate will rise to reach the equilibrium level, balancing supply and demand.

If the Exchange Rate Between the Dollar and Japanese Yen