5. Assume an increase in England’s economic growth. Holding everything else cons

ID: 1103305 • Letter: 5

Question

5. Assume an increase in England’s economic growth. Holding everything else constant, we can expect:

a. An increase in England’s current account surplus as the demand for exports increases

b. A decrease in England’s current account surplus as the demand for exports decreases

c. A decrease in England’s current account surplus as the demand for imports increases

d. An increase in England’s current account surplus as the demand for exports decreases

6. Following the previous question and answer where there was an increase in England’s economic growth (England’s currency is the pound):

a. The pound will appreciate as the supply of pounds decreases in the foreign exchange market

b. The pound will depreciate as the supply of pounds increases in the foreign exchange market

c. The pound will depreciate as the demand for pounds decreases in the foreign exchange market

d. The pound will appreciate as the demand for pounds decreases in the foreign exchange market

7. Following the previous question and answer where there was a change in the value of the pound, we can expect for the current account:

a. A decrease in net exports as the price of imports decreases and price of exports increases

b. An increase in net exports as the price of imports decreases and price of exports increases

c. A decrease in net exports as the price of imports increases and price of exports increases

d. An increase in net exports as the price of imports increases and price of exports decreases

5. Option c is correct (demand for imports would increase as a result of an economic growth (income/output growth) in England)

6. Option b is correct (the pound would be sold to buy the foreign currency to pay for the imports, as a result, the supply of pounds increases)

7. Option d is correct (Depreciation would lead to an increase in the price of imports and a decrease in the price of exports)

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