The United KingdomUnited Kingdom produces computers and sells them to CanadaCana

Question

The United KingdomUnited Kingdom produces computers and sells them to CanadaCanada. At the same time, CanadaCanada produces cars and sells them to the United KingdomUnited Kingdom. Suppose there is an appreciation in the pound. This will cause A. An increase in imports into the United KingdomUnited Kingdom and an increase in exports to CanadaCanada, which will cause an increase in aggregate demand and real GDP. B. A decrease in imports into the United KingdomUnited Kingdom and a decrease in exports to CanadaCanada, which will cause a decrease in aggregate demand and real GDP. C. An increase in imports into the United KingdomUnited Kingdom and a decrease in exports to CanadaCanada, which will cause a decrease in aggregate demand and real GDP. D. A decrease in imports into the United KingdomUnited Kingdom and an increase in exports to CanadaCanada, which will cause an increase in aggregate demand and real GDP.

Explanation / Answer

option (C) is answer

EXPLANATION

as the Pound appreciates, its imports will become cheaper while exports costly, so exports should reduce. As the exports reduce that means output will come down , so REAL GDP will plunge

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