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British pound to US dollar exchange rate (value of one pound in dollars), June 2017 to June 2019 - Edexcel - A-Level Economics A - Question 3 - 2021 - Paper 2
Question 3
British pound to US dollar exchange rate (value of one pound in dollars), June 2017 to June 2019. A) Which one of the following has been the overall change in the B... show full transcript
Worked Solution & Example Answer:British pound to US dollar exchange rate (value of one pound in dollars), June 2017 to June 2019 - Edexcel - A-Level Economics A - Question 3 - 2021 - Paper 2
Step 1
Which one of the following has been the overall change in the British pound to US dollar exchange rate from 1st January 2018 to 1st January 2019?
Answer
The overall change in the British pound to US dollar exchange rate from 1st January 2018 to 1st January 2019 indicates a decline in the value of the pound. Therefore, the only correct answer is B. Depreciation.
This is supported by the exchange rate graph that shows a decrease in the value of the pound over that timeframe. The other options (A, C, D) are incorrect as they do not accurately represent the trend observed.
Step 2
What impact would this depreciation have on the UK current account?
Answer
The depreciation of the pound is likely to have a positive impact on the UK's current account balance. This can be explained through several points:
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Increase in Exports: A weaker pound makes British exports cheaper for foreign buyers, which can lead to an increase in export volumes.
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Decrease in Imports: Conversely, as the pound falls, imports become more expensive. This may result in a reduction of imported goods, as they may be less affordable for consumers within the UK.
These two factors combined are expected to improve the current account balance or reduce the deficit, aiding the overall economic situation.