Question

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

Answer 1

The correct statement for a below-the-equilibrium exchange rate of the dollar is that the quantity supplied is less than the quantity demanded, leading to the dollar's appreciation.

Step-by-step explanation:

The question relates to the concepts of supply and demand in the context of foreign exchange markets. When the exchange rate of the dollar is pegged below the equilibrium, it implies that the quantity demanded of dollars exceeds the quantity supplied. This scenario usually leads to an appreciation of the dollar since there is a higher demand for it compared to the available supply. Therefore, the statement consistent with a below-the-equilibrium exchange rate of the dollar is: 'the quantity of dollars supplied is less than the quantity demanded, and the dollar will appreciate.'