ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Transcribed Image Text: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 of the Eurozone and Morocco reevaluate their currencies so that their official exchange rate is now 1 dirham per 1 euro.
This action results in
of the euro.
Transcribed Image Text:4. Fixed exchange rates
Consider the exchange rate between the Moroccan dirham and the euro. Suppose the Moroccan government and the Eurozone governments agree to
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.
EXCHANGE RATE (Dirham per euro)
4.0
35
30
25
20
15
10
0.5
0
2
Supply of Euros
ÉR
Demand for Euros
4
10
12
QUANTITY OF EUROS (Billions)
14
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