Refer to Figure 36.5 for the dollar-euro foreign exchange market with the market exchange rate at P1. The European Union (EU) and U.S. governments have agreed on a fixed exchange rate of P2. This situation
A. Causes an excess demand for euros.
B. Causes a balance-of-payments deficit for the EU.
C. Calls for an expansionary fiscal policy in the EU.
D. Requires that the EU buy U.S. dollars.
Answer: B
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In this graph, when disposable income is 4,000, consumption is
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C. 2,500.
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