Question

Suppose the Bank of England announces contractionary monetary policy while, at the same time, the Federal Reserve announces a more expansionary monetary policy. Everything else held constant, this would cause the UK pound to________ against the U.S. dollar.

Select one:

change ambiguously

depreciate

appreciate

remain constant

Answer 1

Answer — ...... c , appreciate  

Explanation:- The expansionary monetary policy announced by the FED will increase American bond price, interest rates will fall , the lower interest rate will make American bonds less attractive, so the demand for American bonds will decrease, on the other hand, bond price will fall in UK followed by contractionary monetary policy, interest will increase, UK bonds will become more attractive, so demand for pound will increase while demand for American dollar will decrease, consequently UK pound will be appreciated against the US dollar ( Exchange rate will increase in UK)