Economics (AS & A Level) · May / June 2022 · Paper 14 · Question 22
9708Exchange rates
The diagram shows a freely floating foreign exchange market in the United Kingdom (UK) for the demand and supply of pounds sterling (£) in exchange for United States (US) dollars ($). What could cause the downward shift shown?
- AUK interest rate falls below US interest rate.
- BThe demand for UK exports is price-elastic and prices increase.
- CThe demand for US exports is price-elastic and prices decrease.
- DPeople believe that sterling will appreciate.
As printed in the paper
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Correct answer: C. The demand for US exports is price-elastic and prices decrease.
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