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Assume that britain and the u.s. conduct a large volume of international trade, but rarely engage in financial flows. conversely, japan and the u.s. conduct a large volume of financial flow transactions, but rarely engage in trade flows. under this scenario, everything else held constant, a change in the u.s. ________ would affect the value of the pound, and a change in the u.s. ________ would affect the value of the yen.
a. interest rate; income level
b. interest rate; inflation rate
c. [interest rate; inflation rate] and [interest rate; income level]
d. inflation rate; interest rate
e. none of these choices are correct.

Respuesta :

TheSandman1337
It is important to define some basic concepts. Inflation means the lowering of the value of money due to time; it can be attributed to the fact that as the standards of life are rising, commodities' prices also rise. The interest rate is indicative of how much profit one can have on a specific amount of money in the period of one year (if this weren't the case, we would all invest our money than keep it at the bank). Thus a change in the interest rate in US, the pound would not be affected since Dollars are not converted to Pounds this way; but a change in the inflation rate would mean that the pound could buy more products from the US. Similarly, since there are a lot of financial trades between the US and Japan, a change in the inflation rate in either of these countries would not affect their currencies. But a change in the interest rate would change a lot. Thus, the rifht answer is d. (Income level is rather irrelevant).

The correct option is (d). A change in the U.S inflation rate would affect the value of the pound and a change in U.S interest rate would affect the value of the yen.

Further Explanation:

Inflation:

Inflation refers to the increase in the price of goods. The increase in the inflation rate will decrease the value of the currency. The interest rate also affects the value of the currency. The increase in the interest rate would result in the increase in the value of the currency and vice versa.

In this case, Britain and the United States are carrying on a huge number of trade with each other and are having few financial transactions. The trade between two countries would become expensive because the increase in the interest rate would increase the value of the goods.

 

Japan and the U.S. are carrying on a large number of financial transactions, but few times engage in trade. The change in interest rate will affect the currency as the interest rate increases the value of U.S. currency will rise. The value of the Japanese Yen will fall in comparison with U.S. currency.

Learn more:

1. Learn more about the buying power

https://brainly.com/question/5959656

2. Learn more about the inflation

https://brainly.com/question/3370347

3. Learn more about the effect of inflation  

https://brainly.com/question/3310349

Answer details:

Grade: High School

Subject: Economics

Chapter: International Trade

Keywords: Britain, the U.S., international trade, financial flows, japan, financial flow transactions, trade flows, the value of the pound, the value of the yen, interest rate, income level interest rate.

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