-In the above figure, which of the following is a possible explanation for the reduction in the equilibrium value of the European euro from P2 to P1?
A) an increase in demand for French automobiles
B) the European central bank's decision to buy euros on the world market
C) a decrease in the price of California wines, assuming that French wines and California wines are substitutes
D) an increase in the price of California wines, assuming that French wines and California wine are substitutes

Question

-In the above figure, which of the following is a possible explanation for the reduction in the equilibrium value of the European euro from P2 to P1?
A) an increase in demand for French automobiles 
B) the European central bank's decision to buy euros on the world market 
C) a decrease in the price of California wines, assuming that French wines and California wines are substitutes 
D) an increase in the price of California wines, assuming that French wines and California wine are substitutes

Quizplus · Accepted Answer

A decrease in the price of California wines, assuming they are substitutes for French wines, would lead to a decrease in demand for French wines. This would reduce the demand for euros to buy those wines, leading to a decrease in the equilibrium value of the euro from P2 to P1.

-In the Above Figure, Which of the Following Is a Possible