Refer to the graph above, which shows a change in the demand for pounds from D to D'. Under a system of flexible exchange rates, the:
A) Price of a pound will increase to $3
B) Price of a dollar will increase to 3 pounds
C) Shortage equal to ab would be met using international monetary reserves
D) Payment deficit will cause changes in domestic price and income levels, shifting demand to the left, supply to the right, and reestablishing the original exchange rate
Correct Answer:
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