Use the graph below to answer questions 17- 20.
Figure 1.2
-Refer to Figure 1.2.Suppose that the market for euro is initially in equilibrium at point A with the exchange rate $2.00 per euro.Then the supply curve shifts to S₂.If the European central bank wants to fix the exchange rate at $2.00/euro,they have to:

Question

Use the graph below to answer questions 17- 20.
Figure 1.2

-Refer to Figure 1.2.Suppose that the market for euro is initially in equilibrium at point A with the exchange rate $2.00 per euro.Then the supply curve shifts to S₂.If the European central bank wants to fix the exchange rate at $2.00/euro,they have to:

Quizplus · Accepted Answer

When the supply curve shifts, it creates a new equilibrium point with a different exchange rate. To maintain the exchange rate at $2.00 per euro, the European Central Bank would need to buy euros (increasing demand for euros) and sell dollars (increasing the supply of dollars), which would shift the demand curve to the right, back to the original equilibrium. This action counteracts the effect of the supply shift.

Use the Graph Below to Answer Questions 17- 20