Figure 15-2 -Refer to Figure 15-2.Suppose the Exchange Rate Between the Dollar

question 116

Multiple Choice

Figure 15-2

-Refer to Figure 15-2.Suppose the exchange rate between the dollar and the British pound Is fixed at £0.3 per dollar.Now suppose U.S.residents choose to purchase more British goods and services.Further, suppose that following this event, the Bank of London (Britain's central bank) intervenes to keep the exchange rate at £0.3 per dollar.To do so, the Bank of London is forced to pursue

• A)an expansionary monetary policy in which it will increase its reserves of pounds.
• B)a contractionary monetary policy in which it will draw down its reserves of pounds.
• C)an expansionary monetary policy in which it will increase its reserves of dollars.
• D)a contractionary monetary policy in which it will draw down its reserves of dollars.