Question

Take a look at Figure 33-6. Suppose that the preferences of most British residents alter toward purchasing more downloaded online streaming videos of Hollywood movies distributed by U.S. firms. 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 increases and the dollar appreciates.

Step-by-step solution

Given Introduction

The interest for cash bears a converse relationship with its cost (regarding the homegrown money of the nation), its stock displays an immediate relationship with its cost (concerning the homegrown cash). The place of cooperation of the interest and supply bends yields the balance amount and cost of the unfamiliar cash in the unfamiliar trade.

Explanation

Assume the inclinations of most British inhabitants modify towards buying more downloaded web-based real-time recordings of Hollywood motion pictures disseminated by the US firms. This pushes the stock of pounds in the US from $S\text{to}{S}_1$.

At $\text{E}\pounds 1=\mathrm{\$}1.50\text{and}\pounds 1=\mathrm{\$}1.25\text{at}{\mathrm{E}}_1\text{.}$

On the occasion, the pound becomes cheaper than a dollar or the dollar acquires its worth concerning pounds.

At E$\$1=\pounds 0.67$and at ${\mathrm{E}}_1\mathrm{\$}1=\pounds 0.80$.

HenceThe equilibrium dollar price of the pound increases and the dollar appreciates.