Economics (MindTap Course List)
Solutions
Economics (MindTap Course List)
In each of the following cases, identify whether the U.S. dollar is overvalued or undervalued:
- a. The fixed exchange rate is $2 = £1, and the equilibrium exchange rate is $3 = £1.
- b. The fixed exchange rate is $1.25 = €1, and the equilibrium exchange rate is $1.10 = €1.
- c. The fixed exchange rate is $1 = 10 pesos, and the equilibrium exchange rate is $1 = 14 pesos.
Check whether Country U’s dollar is overvalued or undervalued.
Option (a):
The equilibrium exchange rate is 3 dollars that is equal to 1 pound, and the fixed exchange rate is 2 dollars that is equal to 1 pound. This means that the value of dollar increased. Therefore, fewer dollars are needed for exchanging one pound. Thus, the dollar is overvalued.
Option (b):
The equilibrium exchange rate is 1.10 dollar that is equal to 1 Euro, and the fixed exchange rate is 1.25 dollar that is equal to 1 Euro...
Chapter 34 Solutions
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