The figure below depots the supply of U.S. dollars in the foreign currency excha

Question

The figure below depots the supply of U.S. dollars in the foreign currency exchange market. A shift from D_1 to D_3 in the above figure could have been caused by decrease in the exchange rate from dollar 1.2/dollar 1 to dollar 1.1/dollar 1 an increase in the exchange rate from dollar 1.1/dollar 1 to dollar 1.2/dollar 1 an increase in demand for U S assets relative to British assets an increase in U S interest rates relative to British interest rates a decrease in British consumers demand for U S goods

Explanation / Answer

A decrease in British consumers' demand for U.S goods reduces the demand of U.S dollars and as a result, demand curve shifts leftwards and lead to depreciation of U.S dollar.

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