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Answer :
The correct statement regarding the effects of an interest rate rise is: B. It leads to higher demand for GBP, which results in an appreciation of GBP.
When the Bank of England raises interest rates, it becomes more expensive to borrow money and more profitable to save, which can lead to a reduction in spending and investment.
As a result, there will be a higher demand for GBP since investors seek higher returns on their investments.
This increased demand for GBP leads to an appreciation of the currency, making UK exports more expensive and imports cheaper.
Consequently, the net export component of aggregate demand is likely to decrease, which helps to slow down the overheating economy.
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