To Force the Value of the Pound to Appreciate Against

question 85

Multiple Choice

To force the value of the pound to appreciate against the dollar, the Federal Reserve should:​

• A) ​sell dollars for pounds in the foreign exchange market and the European Central Bank (ECB) should sell dollars for pounds in the foreign exchange market.
• B) ​sell pounds for dollars in the foreign exchange market and the European Central Bank (ECB) should sell dollars for pounds in the foreign exchange market.
• C) ​sell pounds for dollars in the foreign exchange market and the European Central Bank (ECB) should not intervene.
• D) ​sell dollars for pounds in the foreign exchange market and the European Central Bank (ECB) should sell pounds for dollars in the foreign exchange market.

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Definitions:

Mutually Beneficial Agreement

An arrangement between parties where both or all receive benefits or advantages.

Coase Theorem

A legal and economic theory that states that if trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property.

Taxes

Compulsory financial charges or levies collected by governments from businesses and individuals to fund public expenditures.

Negative Externalities

Costs suffered by a third party due to an economic transaction that they were not a part of.