Homework Clinic
Social Science Clinic => Economics => Topic started by: sdfghj on Jun 29, 2018
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What will happen to the exchange rate between the British pound and the U.S. dollar if British prices increase?
What will be an ideal response?
Question 2
What will happen to the exchange rate between the euro and the U.S. dollar if U.S. interest rates increase?
What will be an ideal response?
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Answer to Question 1
British price increases will decrease the supply of dollars, so all else equal the dollar will appreciate in value relative to the pound. British price increases will also decrease the demand for British pounds in the United States.
Answer to Question 2
Higher U.S. interest rates will increase the demand for dollars, so all else equal the dollar will appreciate in value relative to the euro.