Use the following graph, which shows the supply and demand curves for dollars in the pound/dollar market, to answer the next question.
Assume that D1 and S1 are the initial demand for and supply of dollars. Now suppose that Great Britain increases its imports of American products. Assuming freely-floating exchange rates, ________.
A. the dollar price of pounds will increase to $5 = 1 pound
B. the pound price of dollars will rise to 1/4 pound = $1
C. the pound price of dollars will fall to 1/5 pound = $1
D. Britain will experience a dollar shortage of N?M
Answer: B
Economics
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