Use the Following to Answer Questions

Multiple Choice

Use the following to answer questions .
Exhibit: A Fixed Exchange Rate
-(Exhibit: A Fixed Exchange Rate) Suppose the exchange rate between the dollar and the British pound is fixed at £0.3 per dollar. Now suppose U.S. residents choose to purchase more British goods and services. What happens in the foreign exchange market?

A) The demand curve for dollars increases, and the equilibrium exchange rate for the dollar (in terms of pounds) rises.
B) The supply curve for dollars increases, and the equilibrium exchange rate for the dollar (in terms of pounds) falls.
C) The demand curve for dollars decreases, and the equilibrium exchange rate for the dollar (in terms of pounds) falls.
D) The supply curve for dollars decreases, and the equilibrium exchange rate for the dollar (in terms of pounds) rises.