At the official exchange rate of 2.5 dirham per euro, the euro is **overvalued**, and the Moroccan dirham is **undervalued**, which means that Moroccans pay **more** for European exports than they would with a free-floating exchange rate.At the official dirham price of euros, there is a **surplus** of euros in the foreign exchange market.Suppose the governments in the Eurozone and Morocco agree to change the official exchange rate from 2.5 dirham per euro to 2 dirham per euro. The action represents a **devaluation** of the euro and a **revaluation** of the dirham. Consider the exchange rate between the Moroccan dirham and the euro. Suppose the Moroccan government and the Eurozone fix the exchange rate (ER) at 2.5 dirham per euro, as shown by the grey line on the following graph.Refer to the following graph when answering the questions that follow.### Graph Explanation:- **Axes**: - The vertical axis represents the exchange rate in dirham per euro, ranging from 0 to 4. - The horizontal axis represents the quantity of euros in billions, ranging from 0 to 16.- **Curves**: - The orange line labeled "Supply of Euros" slopes upwards, indicating that as the exchange rate increases, the supply of euros increases. - The blue line labeled "Demand for Euros" slopes downwards, showing that as the exchange rate increases, the demand for euros decreases.- **Fixed Exchange Rate Line**: - The grey horizontal line marked "ER" represents the fixed exchange rate of 2.5 dirham per euro. This line intersects the supply and demand curves.

At the official exchange rate of 2.5 dirham per euro, the euro is , and the Moroccan dirham is that Moroccans pay for European exports than they would with a free-floating exchange rate. At the official dirham price of euros, there is a of euros in the foreign exchange market. , which means Suppose the governments in the Eurozone and Morocco agree to change the official exchange rate from 2.5 dirham per euro to 2 dirham per euro. The action represents a of the euro and a of the dirham.

At the official exchange rate of 2.5 dirham per euro, the euro is , and the Moroccan dirham is that Moroccans pay for European exports than they would with a free-floating exchange rate. At the official dirham price of euros, there is a of euros in the foreign exchange market. , which means Suppose the governments in the Eurozone and Morocco agree to change the official exchange rate from 2.5 dirham per euro to 2 dirham per euro. The action represents a of the euro and a of the dirham.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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