The graph shows the demand for dollars rising from D₁ to D₂. What happens to the rupee? The demand for dollars shifts right from D₁ to D₂ while supply S stays put. Equilibrium moves from E₁ (₹80 per dollar, $40 billion) to E₂ (₹90 per dollar, $50 billion).

The graph shows the demand for dollars…

The graph shows the demand for dollars rising from D₁ to D₂.

Question 22

MediumOriginal question

The graph shows the demand for dollars rising from D₁ to D₂. What happens to the rupee?

The demand for dollars shifts right from D₁ to D₂ while supply S stays put. Equilibrium moves from E₁ (₹80 per dollar, $40 billion) to E₂ (₹90 per dollar, $50 billion).

It appreciates from ₹80 to ₹70 per dollarCorrect answerYour answerIt stays at ₹80 per dollarCorrect answerYour answerIt depreciates from ₹40 to ₹50 per dollarCorrect answerYour answerIt depreciates from ₹80 to ₹90 per dollarCorrect answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer D

Correct answer: D

Equilibrium moves from E₁ (₹80) to E₂ (₹90).
More rupees per dollar means the rupee has depreciated.

Worth noting

40 and 50 are quantities of dollars, in billions, read off the horizontal axis, not exchange rates.

Concept: Rise in demand for dollars
Typical timeTypical: 70 s
Your timeYours: —

The rule this testsThe flexible rate: depreciation and appreciation

Practise this chapter →

Ten questions from Foreign Exchange Rate, at your own pace.

Practise this chapter →

Ten questions from Foreign Exchange Rate, at your own pace.

The graph shows the demand for dollars rising from D₁ to D₂.

Question 22

Explanation