2 If interest rates in the United States fall relative to in

2. If interest rates in the United States fall relative to interest rates in Great Britain, all else equal, predict the impact on: 1. the U.S. demand for British pounds? 2. the supply of British pounds for sale? 3. the equilibrium value of the British pound?

Solution

1. US demand for British pounds will increase because more investors will be willing to invest in Britain.

2. Supply of British pounds for sale wil decrease because less Britishers will be willing to invest in USA.

3. Equilibrium value for British pound will increase to a great extent.