If the Bank of England were to respond to a slowdown in the domestic economy by easing monetary policy, all other things equal, one would predict in the short run a(n):
A) increase in the real interest rate, an increase in demand for the pound, and an appreciation in the pound.
B) decrease in the real interest rate, an increase in demand for the pound, and an appreciation in the pound.
C) decrease in the real interest rate, a decrease in demand for the pound, and a depreciation in the pound.
D) increase in the real interest rate, a decrease in demand for the pound, and a depreciation in the pound.

Question

Quizplus · Accepted Answer

Easing monetary policy typically involves lowering interest rates to stimulate economic activity. This decrease in real interest rates makes holding assets denominated in the domestic currency (in this case, the pound) less attractive, leading to a decrease in demand for the pound and consequently, a depreciation of the pound.

If the Bank of England Were to Respond to a Slowdown