Refer to the information provided in Figure 19.3 below to answer the questions that follow. Figure 19.3
-Refer to Figure 19.3. If the British price level decreases, the supply of pounds will

Question

Refer to the information provided in Figure 19.3 below to answer the questions that follow.  Figure 19.3
-Refer to Figure 19.3. If the British price level decreases, the supply of pounds will

Quizplus · Accepted Answer

According to the diagram, as the price level in Britain decreases, the demand for British pounds will increase causing the demand curve to shift to the right from DD1U1B11D1U1B0 to DD1U1B12D1U1B0. This will lead to an increase in the equilibrium exchange rate from E1 to E2. As a result, the quantity of pounds supplied will decrease from Q1 to Q2. Therefore, the supply curve for pounds will shift to the left from S₁ to S₀.

Refer to the Information Provided in Figure 19