Source: Federal Reserve Economic Data, St. Louis Federal Reserve

The figure above plots E (foreign currency units per dollar) for the euro and the British pound from the beginning of 2006 to the beginning of 2010.

Between July 2006 and January 2008, the euro
[ Select ]
appreciated
stayed roughly constant
depreciated
relative to the U.S. dollar. Between July 2008 and January 2009, the British pound
[ Select ]
appreciated
stayed roughly constant
depreciated
relative to the U.S. dollar.

Question

Source: Federal Reserve Economic Data, St. Louis Federal Reserve

The figure above plots E (foreign currency units per dollar) for the euro and the British pound from the beginning of 2006 to the beginning of 2010.

Between July 2006 and January 2008, the euro 
[ Select ]
appreciated
stayed roughly constant
depreciated
 relative to the U.S. dollar. Between July 2008 and January 2009, the British pound 
[ Select ]
appreciated
stayed roughly constant
depreciated
 relative to the U.S. dollar.

BlackTom AI · Accepted Answer

We start by restating the scenario: the figure plots E, the number of foreign currency units per dollar, for the euro (green line) and the British pound (blue line) from early 2006 to early 2010. The task asks us to judge two time intervals relative to the U.S. dollar and choose among appreciate, depreciate, or stay roughly constant.

Option 1: The euro between July 2006 and January 2008
- Interpreting E as euros per 1 USD, a higher E means more euros for each dollar, i.e., the euro is stronger against the dollar. A lower E means fewer euros per dollar, i.e., the euro weaker.
- When we look at the euro (green) line from mid-2006 through early 2008, the value of E declines from around 0.80–0.85 toward about 0.60–0.65. This downward movement indicates that fewer euros are received per dollar, i.e., the euro depreciates against the dollar.
- Therefore, the correct descriptor for this interval is depreciated. The option ‘appreciated’ would imply the euro strengthens against the dollar, which is not supported by the observed decline in E during this period.
- Why the other terms are not appropriate: 'stay roughly constant' would require little to no change in E, which is not the case given the notable drop in the series; 'appreciated' would require E to rise, which again is not observed.

Option 2: The British pound between July 2008 and January 2009
- For the pound, the blue line shows the USD-to-pound rate (1 USD per X pounds). An increase in this rate means you get more dollars per pound, or equivalently, the pound has depreciated against the dollar (the price of a pound in dollars rises).
- From mid-2008 to early 2009, the blue line rises markedly, indicating the pound weakened relative to the dollar (depreciation).
- Therefore, the appropriate description for this interval is depreciated. The alternatives 'appreciated' would mean the pound strengthens, which the chart does not show; 'stayed roughly constant' would imply little change, which again does not reflect the clear upward swing in this period.
- Some students might confuse the direction if they misread the axis labels, so it’s crucial to confirm that an increasing USD-per-pound rate corresponds to a weaker pound against the dollar rather than a stronger one.

In summary, based on the depicted trajectories of the exchange-rate lines, the euro depreciated between July 2006 and January 2008, and the British pound depreciated between July 2008 and January 2009. The remaining options do not align with the observed movements in E during these intervals.

Similar Questions

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If the Australian dollar depreciates against the US dollar, holding other factors constant, which one of the followings may likely happen?

Based on the answer to your previous question, this means that in the long run the British pound is [ Select ] appreciating maintaining a constant exchange rate depreciating vis-à-vis the US dollar in real terms.

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