Question

which statement is consistent with an above-the-equilibrium exchange rate of the dollar? a. the quantity of dollars supplied is greater than the quantity demanded, and the dollar will appreciate. b. the quantity of dollars supplied is greater than the quantity demanded, and the dollar will depreciate. c. the quantity of dollars supplied is less than the quantity demanded, and the dollar will appreciate. d. the quantity of dollars supplied is less than the quantity demanded, and the dollar will depreciate.

Answer 1

The correct statement is that when the exchange rate of the dollar is above the equilibrium, the quantity of dollars supplied is greater than the quantity demanded, and as a result, the dollar will depreciate.

Step-by-step explanation:

You asked which statement is consistent with an above-the-equilibrium exchange rate of the dollar. When the exchange rate is pegged above the equilibrium rate, it means that the quantity of dollars supplied (Qs) exceeds the quantity of dollars demanded (Qd). This creates a situation where there is a surplus of dollars in the foreign exchange market. In response to this surplus, the dollar will tend to depreciate as sellers of dollars may lower their asking price to find buyers. Therefore, the correct statement is: b. the quantity of dollars supplied is greater than the quantity demanded, and the dollar will depreciate.