Suppose that, in Year 1, the price of the U.K. pound is $1.44 = £1. In year 2, the price is $1.48 = £1. An economist would validly conclude that, from Year 1 to Year 2, the U.K. pound __________ relative to the U.S. dollar and, simultaneously, the U.S. dollar __________ relative to the U.K. pound.

Question

Quizplus · Accepted Answer

The U.K. pound appreciated because it takes more U.S. dollars to buy a pound in Year 2 than in Year 1. Conversely, the U.S. dollar depreciated relative to the U.K. pound because it has less purchasing power against the pound in Year 2 compared to Year 1.

Suppose That, in Year 1, the Price of the U