6.1 Signposting

Question 1

Factors that shift demand for the pound right (D1 to D2)

Answer 1

1. Increase in incomes abroad
2. A relative rise in UK interest rates
3. An increase in FDI in Britain
4. Speculators anticipating a rise in the pound.
5. Improvement in international competitiveness due better labour productivity, investment and lower relative inflation rates.
6. High investor confidence in the economy.

Question 2

Factors that shift supply for the pound to the right (S1 to S2)

Answer 2

1. UK businesses investing abroad.
2. Speculators anticipating a fall in the pound.
3. Increase in incomes domestically.
4. A fall in relative interest rates.
5. Low investor confidence in the economy.