The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 36.2 Refer to Figure 36.2.An increase in the equilibrium quantity of British pounds from 300 to 350 would most likely mean that:
A)the demand for British pounds has decreased.
B)the supply of British pounds has decreased.
C)increased demand for dollars has caused the dollar to depreciate and the pound to appreciate.
D)increased demand for dollars has caused the dollar to appreciate and the pound to depreciate.
E)the equilibrium exchange rate is $1.60 per British pound.

Question

The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 36.2  Refer to Figure 36.2.An increase in the equilibrium quantity of British pounds from 300 to 350 would most likely mean that:
A)the demand for British pounds has decreased. 
B)the supply of British pounds has decreased. 
C)increased demand for dollars has caused the dollar to depreciate and the pound to appreciate. 
D)increased demand for dollars has caused the dollar to appreciate and the pound to depreciate. 
E)the equilibrium exchange rate is $1.60 per British pound.

Quizplus · Accepted Answer

An increase in the equilibrium quantity of British pounds represents an increase in the demand for British pounds. This increase in demand would cause the value of the British pound to appreciate and the value of the U.S. dollar to depreciate. Therefore, increased demand for dollars has caused the dollar to appreciate and the pound to depreciate, which is represented by a movement from point A to point B along the demand curve for British pounds.

The Figure Given Below Depicts the Foreign Exchange Market for British