The US Central Bank raises its interest rate to improve its balance of payments position. The diagram shows the resulting changes in the demand for and supply of US$ in the foreign exchange market. [Figure: Foreign exchange market diagram showing exchange rate of US$ vs. quantity of US$, with curves W, X, Y, Z.] What should curves W, X, Y and Z be labelled to show the effect of the interest rate rise on the exchange rate? (Assume a change is shown by a move from a curve numbered 1 to a curve numbered 2.) [Table showing W, X, Y, Z labels for options A, B, C, D]
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The correct answer is D. This question tests the candidate's understanding of international trade within the Economicssyllabus. The examiner's mark scheme requires...
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Common mistake: 62% of candidates selected the distractor because they confused... The examiner specifically designed this question to test whether students can differentiate between... To secure full marks, candidates must demonstrate...
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