Under a managed float,if U.S.GDP suddenly increased,which of the following actions would the Bank of England need to take in order to stop any movement in the dollar-pound exchange rate?
A) Buy British pounds for dollars in order to shift the demand curve for pounds leftward
B) Sell British pounds for dollars in order to shift the supply curve for pounds leftward
C) Sell British pounds for dollars in order to shift the supply curve for pounds rightward
D) Buy British pounds for dollars in order to shift the demand curve for pounds rightward
E) Do nothing,since purchasing power parity will correct the situation in the short run.

Question

Quizplus · Accepted Answer

An increase in U.S. GDP would likely increase demand for British goods, increasing demand for pounds. To counteract this and maintain the exchange rate, the Bank of England would sell pounds to increase their supply, shifting the supply curve rightward.

Under a Managed Float,if U