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Question
Figure 1.1
Refer to Figure 1.1. Suppose that the market for British pound is initially in equilibrium at point A with the exchange rate $2.00 per pound. Then the demand curve shifts to D2. If the British central bank wants to fix the exchange rate at $2.00/pound, there will be ________ of pound and the pound is __________.
a. excess supply; overvalued
b. excess supply; undervalued
c. excess demand; overvalued
d. excess demand; undervalued
Answer
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