Consider the Supply-Demand Framework for the British Pound Relative to the U.S

question 16

Multiple Choice

Consider the supply-demand framework for the British pound relative to the U.S. dollar shown in the nearby chart. The exchange rate is currently $1.80 = £1.00. Which of the following is correct?

• A)To "fix" the exchange rate at $1.80 = £1.00, the Federal Reserve could use contractionary monetary policy to shift the demand curve to the left.
• B)To "fix" the exchange rate at $1.80 = £1.00, the U.S. government could use contractionary fiscal policy to shift the demand curve to the left.
• C)The British Government could use fiscal or monetary policy to shift the supply curve to the right to fix the exchange rate to $1.80 = £1.00.
• D)All of the above.

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