Let the monthly demand for British pounds and the monthly supply of British pounds be described by

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Let the monthly demand for British pounds and the monthly supply of British pounds be described by the following equations:

Demand for pounds = 10 - 2e

Supply of pounds = 4 + 3e

where the quantities are in millions of pounds, and e is dollars per pound.

a. Find the equilibrium exchange rate.

b. Suppose the U.S. government intervenes in the foreign currency market and uses U.S. dollars to buy 2 million pounds each month. What happens to the exchange rate? Why might the U.S. government do this?

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Macroeconomics Principles and Applications

ISBN: 978-1111822354

6th edition

Authors: Robert E. Hall, Marc Lieberman

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Question Posted: Jun 09, 2018 08:41 AM

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Let the monthly demand for British pounds and the monthly supply of British pounds be described by

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a Setting the quantity of pounds demanded equal to the quantity supplied we have 10 ...View the full answer

Macroeconomics Principles and Applications

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