If the European Central Bank increases interest rates,

Question

Quizplus · Accepted Answer

If the European Central Bank increases interest rates, it would make European euros more attractive to investors because they can get a higher return on their investment. As a result, the demand curve for European euros would shift rightward. On the other hand, the British sterling pound would become relatively less attractive because investors can get a higher return in euros, so the demand curve for sterling pounds would shift leftward. Therefore, the best choice is B, as it correctly explains the direction of the shifts in both demand curves.

If the European Central Bank Increases Interest Rates