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Lower UK interest rates are likely to lead to an increase in the volume of UK exports because they probably lead to:

A. A rise in costs of UK businesses and a rise in the exchange rate of the pound
B. A rise in costs of UK businesses and a fall in the exchange rate of the pound
C. A fall in costs of UK businesses and a rise in the exchange rate of the pound
D. A fall in costs of UK businesses and a fall in the exchange rate of the pound

Answer :

Final answer:

Lower UK interest rates lead to reduced costs for businesses and a decline in the exchange rate of the pound, making UK goods cheaper for foreign consumers. This combination is likely to increase the volume of UK exports. Therefore, option D is the correct answer.


Explanation:

Understanding the Impact of Lower UK Interest Rates on Exports

Lower interest rates in the UK generally make borrowing cheaper, which can lead to several economic effects that potentially increase the volume of UK exports. This scenario often leads to a fall in costs for UK businesses because financing and operational costs become more manageable.

When lower interest rates are enacted, the attractiveness of the UK for international investment can decrease, leading to a fall in the exchange rate of the pound. A weaker pound means that UK goods become relatively cheaper for foreign buyers, thus likely increasing demand for exports.

Consequences of Lower Interest Rates

  1. Reduced Costs: With lower interest rates, businesses can lower their costs associated with loans and operational expenses.
  2. Exchange Rate Decline: A decline in the value of the pound against other currencies makes exports less expensive and more attractive to foreign customers.
  3. Increased Export Volume: As a result of reduced costs and a favorable exchange rate, the export volume is likely to increase.

Therefore, option D. A fall in costs of UK businesses and a fall in the exchange rate of the pound accurately reflects the potential outcome of lower interest rates leading to increased UK exports.


Learn more about UK Exports and Interest Rates here:

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