If the U.S.interest rate falls at the same time there is an increase in British real GDP,which of the following would happen in the market for British pounds?
A) A rightward shift of the demand for pounds curve,a rightward shift of the supply of pounds curve,a larger number of pounds traded,and an indeterminate effect on the dollars per pound exchange rate.
B) A rightward shift of the demand for pounds curve,a rightward shift of the supply of pounds curve,a larger number of pounds traded,and an increase in the dollars per pound exchange rate.
C) A rightward shift of the demand for pounds curve,a rightward shift of the supply of pounds curve,a larger number of pounds traded,and a decrease in the dollars per pound exchange rate.
D) A leftward shift of the demand for pounds curve,a rightward shift of the supply of pounds curve,a larger number of pounds traded,and an indeterminate effect on the dollars per pound exchange rate.
E) Cannot be determined without additional information.

Question

Quizplus · Accepted Answer

A fall in U.S. interest rates makes U.S. assets less attractive, increasing demand for pounds. An increase in British GDP increases supply of pounds as British import more. Both shifts lead to more pounds traded, but the exchange rate effect is indeterminate.

If the USinterest Rate Falls at the Same Time There Is an Is