Figure 19.3
-Suppose the graph in Figure 19.3 represents the market for the British pound under the Bretton Woods System.If the par exchange rate was set at 4 United States dollars

Question

Figure 19.3 
-Suppose the graph in Figure 19.3 represents the market for the British pound under the Bretton Woods System.If the par exchange rate was set at 4 United States dollars

Quizplus · Accepted Answer

If the par exchange rate was set at $4 per pound, and the exchange rate on the graph is below the par exchange rate, it means that the pound is undervalued. This would lead to an excess demand for pounds, causing a shortage. In order to maintain the exchange rate at the par level, the British central bank would have to intervene by buying pounds with US dollars. Therefore, the correct choice is B.

Figure 19.3 -Suppose the Graph in Figure 19.3 Represents the Market for the Market