Question

Take a look at Figure 33-5. Suppose that in response to a significant rise in interest in Jane Austen's works and life, millions of U.S. residents suddenly purchase British-published books by and about the famous author and travel to Britain to visit Jane Austen's former home. What will happen to the equilibrium dollar price of the pound, and why? Does the dollar appreciate or depreciate in relation to the pound?

Short answer

The equilibrium dollar price of the pound falls and the dollar depreciates.

Step-by-step solution

Given Information

Under the adaptable/drifting swapping scale framework, very much like the basic hypothesis of interest and supply, the interest for cash bears a backwards relationship with its cost (concerning the homegrown money of the nation), and its stock displays an immediate relationship with its cost (regarding the homegrown money).

Explanation

The unexpected spray in the interest for pounds expands it's worth opposite dollars in the US. In the reference figure, this unexpected expansion in the interest for pounds results in a rightward shift in the interest for the cash from $D_1\text{to}{D}_2$.

On the occasion, the pound becomes costly to the dollar or the dollar loses its worth concerning pounds.

At${\mathrm{E}}_1\$1=\pounds 0.67$and at ${\mathrm{E}}_2=\mathrm{\$}1=\pounds 0.57$.

Hence the equilibrium dollar price of the pound falls and the dollar depreciates.