Figure 32-2
-Refer to Figure 32-2. If the real exchange rate is 1, then there is a
A)surplus of 100 so the real exchange rate will fall.
B)surplus of 100 so the real exchange rate will rise.
C)shortage of 100 so the real exchange rate will fall.
D)shortage of 100 so the real exchange rate will rise.

Question

Figure 32-2 
-Refer to Figure 32-2. If the real exchange rate is 1, then there is a
A)surplus of 100 so the real exchange rate will fall. 
B)surplus of 100 so the real exchange rate will rise. 
C)shortage of 100 so the real exchange rate will fall. 
D)shortage of 100 so the real exchange rate will rise.

Quizplus · Accepted Answer

When the real exchange rate is 1, the quantity of dollars supplied exceeds the quantity demanded by 100, indicating a surplus. In response to a surplus, the real exchange rate tends to fall to restore equilibrium.

Figure 32-2 -Refer to Figure 32-2. If the Real Exchange Rate Is