Question

the accompanying graph of the market for the euro shows a change in the equilibrium from e0 to e1, with a change in the equilibrium dollar price of a euro. which of the following statements is consistent with this change? (1 point)

Answer 1

The change in equilibrium from E0 to E1 in the market for the euro indicates a shift in the supply and demand of U.S. dollars.

Step-by-step explanation:

The change in equilibrium from E0 to E1 in the market for the euro indicates a shift in the supply and demand of U.S. dollars.

In this scenario, the U.S. government increases borrowing, leading to higher demand for dollars from European financial investors who want to purchase U.S. government bonds.

As a result, the demand for U.S. dollars shifts to the right from D0 to D1, and the supply of U.S. dollars falls from S0 to S1.

This shift in supply and demand leads to a stronger exchange rate, with the equilibrium price of a euro appreciating from 0.9 to 1.05 euros per dollar at E1.