Question

Suppose the U.S. imports cars from the UK​ manufacturer, McLaren. Consider an appreciation of the pound. Which of the following statements correctly describe the effects of this​change?
A. Hold all other prices constant.
B. U.S. consumers pay more dollars for each McLaren car they import from the UK.
C. McLaren supplies a greater quantity of dollars to the foreign exchange market.
D. U.S. consumers increase their purchases of McLaren cars.
E. McLaren's dollar revenues fall.
To peg the pounds per dollar exchange rate at a level higher than the market clearing exchange​ rate, the UK government needs to:_________.
a. buy pounds and sell dollars
b. buy dollars and sell pounds
c. simple announce a target exchange rate

Answer 1

Answer:

b. and a

Explanation:

Answer:

b. and

Explanation:

Remember, when foreign exchange rates between two currencies of particular country rises (appreciates), it effects is experienced most by the country whose currency hasn't risen. In this case therefore, this would make U.S. consumers pay more dollars for each McLaren car they import from the UK.

Also, to peg the pounds per dollar exchange rate at a level higher than the market clearing exchange​ rate, the UK government needs to buy pounds and sell dollars, because reducing the supply of pounds in the exchange market creates an opportunity for higher exchange prices.