4. Exchange-rate overshooting The following graph shows the short-run supply schedule (Sp) and demand schedule (Do) for the British pound. S₁ 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 gray 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) 40 36 32 20 24 20 16 12 ов 04 Short-Run Equilibrium 30 D 0 0 10 20 30 40 50 60 70 80 00 100 QUANTITY (Pounds) Long-Run Equilibrium Referring to the previous graph, use the dropdown menus in the following table to show the order of the events that led to the long-run equilibrium exchange rate. Step 1. Event N 2. 3. 5.

4. Exchange-rate overshooting The following graph shows the short-run supply schedule (Sp) and demand schedule (Do) for the British pound. S₁ 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 gray 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) 40 36 32 20 24 20 16 12 ов 04 Short-Run Equilibrium 30 D 0 0 10 20 30 40 50 60 70 80 00 100 QUANTITY (Pounds) Long-Run Equilibrium Referring to the previous graph, use the dropdown menus in the following table to show the order of the events that led to the long-run equilibrium exchange rate. Step 1. Event N 2. 3. 5.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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