Suppose the exchange rate between the British pound and the U.S. dollar is 1 = $1.50. a.

Question:

Suppose the exchange rate between the British pound and the U.S. dollar is £1 = $1.50.

a. Draw a graph showing the demand and supply of pounds for dollars.
b. If the Bank of England implements a contractionary monetary policy, explain what will happen to the exchange rate between the pound and the dollar and show this on a graph. Has the dollar appreciated or depreciated relative to the pound? Explain.
c. If the U.S. government implements an expansionary fiscal policy, explain what will happen to the exchange rate between the pound and the dollar and show this on a graph.
Has the dollar appreciated or depreciated relative to the pound? Explain.

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...

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