2. Individual Problems 11-2 When Great Britain voted to leave the eurozone, the pound depreciated 17% against the dollar. It also raised fears that the eurozone, which uses the euro as a common curren

2. Individual Problems 11-2

When Great Britain voted to leave the eurozone, the pound depreciated 17% against the dollar. It also raised fears that the eurozone, which uses the euro as a common currency, would fall apart. Suppose that the dollar is considered safer than the euro, given these conditions.

The following graph shows the market for dollars, with the quantity of dollars measured along the horizontal axis and the price of dollars in terms of euros measured along the vertical axis (in other words, the euro/dollar exchange rate).

Use the graph to help you answer the questions that follow. You can shift either the supply curve for dollars or the demand curve for dollars, or both, to observe the effects. You will not be graded by any changes you make to the graph.

Show Graph  

These fears would cause the demand for dollars to increase or decrease   , and the supply of dollars to increase or decrease      , leading to an increase or a decrease      in the euro/dollar exchange rate.