Answer to Question #325681 in Macroeconomics for Sheron

Question

Assume that the rand/dollar exchange rate is above the equilibrium exchange rate. This will lead to a

Answer 1

The equilibrium exchange rate may be either above or below the fixed rate. When equilibrium is above the fixed rate, there is a shortage of the national currency at the fixed rate. This would normally force the equilibrium exchange rate upwards, but the rate is fixed and so cannot be allowed to move.