If Britain allows the pound-DM (Deutsche Mark) exchange rate to float, and there is an increase in the foreign interest rate, it:
A) has no effect on home rates.
B) will cause a monetary contraction and a higher interest rate in Britain.
C) will eventually decrease if trade is affected.
D) always shifts out the home IS curve (Britain), all else equal.
Ans: D) always shifts out the home IS curve (Britain), all else equal.
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