Which of the following would occur if labor productivity in the UK increased relative to that in the US,and before this increase the dollar was in an exchange rate equilibrium with the sterling?

Question

Quizplus · Accepted Answer

An increase in labor productivity in the UK relative to that in the US means that goods and services produced in the UK become relatively cheaper. This will cause an increase in demand for pounds by the US, as they would need more pounds to purchase goods and services from the UK. Therefore, choice B is the correct answer. Choice A is incorrect as an increase in demand for pounds will lead to an increase in imports from the UK, not a decrease. Choice C and D are also incorrect as they are not relevant to the scenario presented in the question.

Which of the Following Would Occur If Labor Productivity in the UK