Under ERM, the British pound was fixed relative to an anchor currency, the German mark (Germany's currency before the ad

[answerhappygod]

Under ERM, the British pound was fixed relative to
an anchor currency, the German mark (Germany's
currency before the advent of the euro in 1999). In
the aftermath of German unification in October 1990,
German government substantially increased its
spending following the contractionary monetary
policy by the German central bank, the Bundesbank.
Draw the diagram.
a) Show the consequences of the action by the
Bundesbank in the foreign exchange market for the
British pounds. Note that in the diagram, the pound
is the domestic currency and the German mark is
foreign currency. Explain your diagram.
b) Suppose that the pound was not fixed relative to
the mark. Explain what would have been the
responses of the British economy to the German
unification. (hint: think about the policies that the
British would have adopted)