Which of the following would cause the demand curve for pounds to shift to the left?
A) a decrease in Britain's rate of inflation relative to U.S. inflation
B) an increase in U.S. interest rates relative to British interest rates
C) a rise in British labor productivity relative to U.S. labor productivity
D) improving American tastes for British goods

Question

Quizplus · Accepted Answer

An increase in U.S. interest rates relative to British interest rates would make it more attractive for investors to hold dollars instead of pounds, decreasing the demand for pounds and shifting the demand curve to the left. A decrease in Britain's rate of inflation relative to U.S. inflation (option A) would increase the demand for pounds, shifting the demand curve to the right. A rise in British labor productivity relative to U.S. labor productivity (option C) would make British goods relatively cheaper and increase the demand for pounds, shifting the demand curve to the right. Improving American tastes for British goods (option D) would increase the demand for pounds as Americans would demand more pounds to purchase British goods, shifting the demand curve to the right.

Which of the Following Would Cause the Demand Curve for Pounds