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. Requires that the EU buy U.S. dollars.
C. Causes a balance-of-payments deficit for the EU.
D. Calls for an expansionary fiscal policy in the EU.


Answer: C

Economics

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