Y7

Last week, the Central Bank of Nigeria announced an unorthodox inflationfighting measure: a redesign of its 100-, 200-, 500-, and 1,000-naira currency notes. Forcing people to exchange old notes for new ones, the bank believes, will mop up the huge volumes of currency stashed in private safes, outside the banking system.

The new notes will debut in December, but Nigerians have already been urged to start depositing their old notes before they become invalid by the end of January next year. But as Nigerians look to evade that measure, and to change naira into dollars instead, a consequent shortage of dollars is weakening the naira even further.

The naira officially traded at 438 against the dollar. While that is already a high rise from last year, the "real" ratetraded outside bank halls on the streets of Lagos and Abujahas shot up to 830 naira to the dollar this week, from under 570 this time last year."

a. Assume that Nigeria effectively has a fixed exchange rate. Show the official equilibrium with a suitable supply and demand graph.