A fall in incomes in the US.

News which suggests that prospects for UK firms are improving.

A rise in interest rates in the UK.

An expected rise in the value of sterling.

A fixed exchange rate regime.

An adjustable peg exchange rate regime.

A managed float routine.

A floating exchange rate regime

The law of one price says that the prices which producers in different countries set for a particular product will be the same if the prices are expressed in the same currency using the current exchange rate

Purchasing power parity is a theory which says that says the total prices of any basket of products which apply in two different countries will be the same if the prices are expressed in the same currency using the current exchange rate.

Interest rate parity is a theory that the interest rates on similar assets in two countries will be the same.

The real exchange rate between two countries is the rate at which a particular basket of products produced in one country can be traded with a similar basket produced in another

The interest rate will initially fall but must in the end return to its initial value

Consumer spending and investment will initially increase, but must in the end return to their initial values.

Money demand must end up higher that it was initially.

The exchange rate must end up at its initial value.

There will be an initial increase in demand, probably government purchases and consumer spending

As demand increases, incomes and money demand start to increase, causing a rise in the interest rate and, in turn, in the exchange rate

The interest rate must end up at its initial value, so money demand must return to its original level

Output will end up higher than it was initially.