Use the graph below to answer questions 9 - 12.
Figure 1.1
-Refer to Figure 1.1.Suppose that the market for British pound is initially in equilibrium at point A with the exchange rate $2.00 per pound.Then the demand curve shifts to D₂.If the British central bank wants to fix the exchange rate at $2.00/pound,there will be ________ of pound and the pound is __________.

Question

Use the graph below to answer questions 9 - 12.
Figure 1.1

-Refer to Figure 1.1.Suppose that the market for British pound is initially in equilibrium at point A with the exchange rate $2.00 per pound.Then the demand curve shifts to D₂.If the British central bank wants to fix the exchange rate at $2.00/pound,there will be ________ of pound and the pound is __________.

Quizplus · Accepted Answer

When the demand for the British pound increases (shifts right) and the central bank wants to fix the exchange rate at $2.00 per pound, it creates a situation where the quantity demanded exceeds the quantity supplied at that price, leading to excess demand. Since the central bank is trying to maintain the pound's value higher than the market equilibrium would suggest, the pound is considered undervalued.

Use the Graph Below to Answer Questions 9 - 12