The following graph shows the short-run supply schedule (So) and demand schedule (Do) for the British...

 

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The following graph shows the short-run supply schedule (So) and demand schedule (Do) for the British pound. S₁ denotes the long-run supply schedule of pounds. The initial equilibrium exchange rate is $3.00 per pound. Suppose that the demand for pounds decreases to D₁. On the graph, use the tan point (dash symbol) to indicate the short-run equilibrium exchange rate. Then use the grey point (star symbol) to indicate the long-run equilibrium exchange rate. Note: Dashed drop lines will automatically extend to both axes. EXCHANGE RATE (Dollars per pound) 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0 + 0 10 20 30 40 50 60 So D QUANTITY (Pounds) 70 80 16 D 90 100 Short-Run Equilibrium Long-Run Equilibrium ? The following graph shows the short-run supply schedule (So) and demand schedule (Do) for the British pound. S₁ denotes the long-run supply schedule of pounds. The initial equilibrium exchange rate is $3.00 per pound. Suppose that the demand for pounds decreases to D₁. On the graph, use the tan point (dash symbol) to indicate the short-run equilibrium exchange rate. Then use the grey point (star symbol) to indicate the long-run equilibrium exchange rate. Note: Dashed drop lines will automatically extend to both axes. EXCHANGE RATE (Dollars per pound) 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0 + 0 10 20 30 40 50 60 So D QUANTITY (Pounds) 70 80 16 D 90 100 Short-Run Equilibrium Long-Run Equilibrium ?