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4. Exchange-rate overshooting The following graph shows the short-run supply schedule (Sp) and demand schedule (Do) for the British pound. Si denotes the long-run supply schedule of pounds. The initial equilibrium exchange rate is $2.40 per pound. Suppose that the demand for pounds decreases to D₁. On the graph, use the tan point (dash symbol) to indicate the short-run equilibrium exchange rate. Then use the grey point (star symbol) to indicate the long-run equilibrium exchange rate. Note: Dashed drop lines will automatically extend to both axes. EXCHANGE RATE (Dollars per pound) 2.B 92 22 2 2 2 2 go 0.8 04 So Do D 10 20 30 40 50 60 70 80 90 100 Short-Run Equilibrium * Long-Run Equilibrium QUANTITY (Pounds) The quantity of pounds supplied decreases. The supply schedule of pounds becomes more elastic, as shown by S. The dollar depreciates to $2.00 per pound. Referring exchange The dollar appreciates to $1.20 per pound. The British price of U.S. exports increases, and the quantity of U.S. exports demanded decreases. Step 1. 2. that led to the long-run equilibrium

4. Exchange-rate overshooting The following graph shows the short-run supply schedule (Sp) and demand schedule (Do) for the British pound. Si denotes the long-run supply schedule of pounds. The initial equilibrium exchange rate is $2.40 per pound. Suppose that the demand for pounds decreases to D₁. On the graph, use the tan point (dash symbol) to indicate the short-run equilibrium exchange rate. Then use the grey point (star symbol) to indicate the long-run equilibrium exchange rate. Note: Dashed drop lines will automatically extend to both axes. EXCHANGE RATE (Dollars per pound) 2.B 92 22 2 2 2 2 go 0.8 04 So Do D 10 20 30 40 50 60 70 80 90 100 Short-Run Equilibrium * Long-Run Equilibrium QUANTITY (Pounds) The quantity of pounds supplied decreases. The supply schedule of pounds becomes more elastic, as shown by S. The dollar depreciates to $2.00 per pound. Referring exchange The dollar appreciates to $1.20 per pound. The British price of U.S. exports increases, and the quantity of U.S. exports demanded decreases. Step 1. 2. that led to the long-run equilibrium

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
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4. Exchange-rate overshooting The following graph shows the short-run supply schedule (Sp) and demand schedule (Do) for the British pound. Si denotes the long-run supply schedule of pounds. The initial equilibrium exchange rate is $2.40 per pound. Suppose that the demand for pounds decreases to D₁. On the graph, use the tan point (dash symbol) to indicate the short-run equilibrium exchange rate. Then use the grey point (star symbol) to indicate the long-run equilibrium exchange rate. Note: Dashed drop lines will automatically extend to both axes. EXCHANGE RATE (Dollars per pound) 2.B 92 22 2 2 2 2 go 0.8 04 So Do D 10 20 30 40 50 60 70 80 90 100 Short-Run Equilibrium * Long-Run Equilibrium QUANTITY (Pounds) The quantity of pounds supplied decreases. The supply schedule of pounds becomes more elastic, as shown by S. The dollar depreciates to $2.00 per pound. Referring exchange The dollar appreciates to $1.20 per pound. The British price of U.S. exports increases, and the quantity of U.S. exports demanded decreases. Step 1. 2. that led to the long-run equilibrium
Transcribed Image Text:4. Exchange-rate overshooting The following graph shows the short-run supply schedule (Sp) and demand schedule (Do) for the British pound. Si denotes the long-run supply schedule of pounds. The initial equilibrium exchange rate is $2.40 per pound. Suppose that the demand for pounds decreases to D₁. On the graph, use the tan point (dash symbol) to indicate the short-run equilibrium exchange rate. Then use the grey point (star symbol) to indicate the long-run equilibrium exchange rate. Note: Dashed drop lines will automatically extend to both axes. EXCHANGE RATE (Dollars per pound) 2.B 92 22 2 2 2 2 go 0.8 04 So Do D 10 20 30 40 50 60 70 80 90 100 Short-Run Equilibrium * Long-Run Equilibrium QUANTITY (Pounds) The quantity of pounds supplied decreases. The supply schedule of pounds becomes more elastic, as shown by S. The dollar depreciates to $2.00 per pound. Referring exchange The dollar appreciates to $1.20 per pound. The British price of U.S. exports increases, and the quantity of U.S. exports demanded decreases. Step 1. 2. that led to the long-run equilibrium
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