Question

D1 and S1 represent the initial demand and supply curves. If there is a huge increase in the desire of U.S. buyers to consume British products, and the British government starts buying U.S. dollars in order to fix the exchange rate at the initial level, then the new equilibrium will be found at _____.rev: 05_02_201

Answer 1

H (from Graph)

Step-by-step explanation:

• See the Graph attached.
• New Equilibrium point will be found at H.
• When demand will increase for British products payments will be processed in Pounds and its demand will increase consequently. This will make the flow British pound in the US market making the price of dollar come down as compared to Pound. From the graph we can see that point E corresponds to our description.