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A-Level Economics · Currency appreciation (hot money) diagram question
Which point is the NEW equilibrium after demand for pounds shifts to D₂?
The diagram
The answer
Point F. D₂ crosses S at F: the rate rises to e₂ and the quantity of pounds traded rises to Q₂. The shift moves the market from E straight to F. Note what actually rises: the PRICE of the pound and the QUANTITY of pounds traded — not growth and inflation. That slip costs marks on this diagram.
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