Explain what a Fixed Exchange Regime is.

a. In the Chart above, show what happens if the US wants to fix his currency STRONGER than it really is, say to make one pound buy $1.50 dollars instead of the $1.55 in equilibrium. Explain.

b. In the Chart above, show what happens if the US wants to fix his currency WEAKER than it really is, say to make one pound buy $1.60 dollars instead of the $1.55 in equilibrium. Explain.

$1.60 Value of $1.55 $1.50 Quantity of