Assume that there is a free-floating exchange rate. Will the following cause the exchange rate to appreciate or depreciate? In each case you should consider whether there is a shift in the demand or supply curves of sterling (or both) and which way the curve(s) shift(s).
Assume that there is a free-floating exchange rate. Will the following cause the exchange rate to appreciate or depreciate? In each case you should consider whether there is a shift in the
(a) Imports increase. Demand curve shift left / right / no shift
Supply curve shift left / right / no shift
Exchange rate appreciates /
(b) UK interest rates rise relative to those abroad. Demand curve shift left / right / no shift
Supply curve shift left / right / no shift
Exchange rate appreciates / depreciates
(c) The UK experiences a lower rate of inflation than other
countries (assuming no change in interest rates). Demand curve shift left / right / no shift
Supply curve shift left / right / no shift
Exchange rate appreciates / depreciates
(d) Speculators believe that the rate of exchange will fall.
Demand curve shift left / right / no shift
Supply curve shift left / right / no shift
Exchange rate appreciates / depreciates
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