The US Central Bank reduces its interest rate in order to increase aggregate demand. This affects the exchange rate of the US$. The diagram illustrates the resulting shifts in the demand for and supply of US$ in the foreign exchange market. Assume that a change is represented by a movement from curve numbered 1 to curve numbered 2. What should W, X, Y and Z be labelled to show the effect of the interest rate rise on the exchange rate?
- AW S1; X S2; Y D1; Z D2
- BW S1; X S2; Y D2; Z D1
- CW S2; X S1; Y D1; Z D2
- DW S2; X S1; Y D2; Z D1