Question

If a government fixes the exchange rate ________ the market equilibrium, there will be a shortage of the domestic currency and a tendency for the exchange rate (U.S. dollars per unit of the domestic currency) to ________.

Answer 1

Below, rise.

Step-by-step explanation:

If a government fixes the exchange rate below the market equilibrium, there will be a shortage of the domestic currency and a tendency for the exchange rate (U.S. dollars per unit of the domestic currency) to rise. The exchange rate is the price of one currency in terms of another currency. It is the Central Bank of each country the entity that fixes the exchange rate, and the markets decide the value of the floating rate.