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. (20 points)
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)