After the unification of the East and West German economies in 1990, the East German mark (EDM) was replaced by the West German mark (DM). A contested issue in the debates over the terms of unification was the rate at which the EDM and DM were to be exchanged for each other. Some argued that DM 1 must be set equal to EDM 2, while others favored a one-to-one relationship. In the end, the government of Germany decided to apply the DM 1=EDM 1 exchange rate for the first 3000 Eastern marks that each former East German citizen wanted to convert and maintain an exchange rate of DM 1=EDM 2 for any additional amounts of EDM offered for exchange. Suppose the German government had decided to apply the 1:1 rate to all East German marks.

Assuming that all other policies as well as production levels would have remained the same, compared to what actually happened to the dollar-DM exchange rate, the dollar value of the DM __________.

could have been higher or lower in unpredictable ways

would have been the same

would have been lower

would have been higher