The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.Figure 22.2

-Suppose a permanent increase in demand for the Argentinean peso causes a chronic shortage of this currency in the foreign exchange market. The Argentinean government should then:
A)request other countries to revalue their currency.
B)devalue the peso.
C)allow the peso to appreciate.
D)restricts exports.
E)restrict imports.

Question

The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.Figure 22.2
 
-Suppose a permanent increase in demand for the Argentinean peso causes a chronic shortage of this currency in the foreign exchange market. The Argentinean government should then:
A)request other countries to revalue their currency. 
B)devalue the peso. 
C)allow the peso to appreciate. 
D)restricts exports. 
E)restrict imports.

Quizplus · Accepted Answer

Allowing the peso to appreciate would naturally correct the chronic shortage of the currency in the foreign exchange market by making Argentine exports more expensive and imports cheaper, thus balancing the demand for pesos.

The Figure Given Below Depicts the Foreign Exchange Market for British