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

If labor productivity in the UK increases relative to the US, it means that goods and services produced per hour of work in the UK will increase compared to the US. This will make UK goods relatively cheaper and more competitive, and US consumers will demand more pounds to buy UK goods. As a result, the demand for pounds will increase, and the exchange rate will adjust to reflect this new demand. Therefore, the US will now demand more pounds.

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