Question. If the Bank of England reduces the money supply to reduce inflation a floating exchange rate will aid the Bank of England in fighting inflation because ?
  1. as the money supply is decreased the interest rate will increase and the price of UK exports will rise and the Price of UK imports will fall
  2. as the money supply is decreased the interest rate will increase, and the price of UK exports will fall and the price of UK imports will rise
  3. as the money supply is decreased the interest rate will increase and the price of UK exports and UK imports will fall.
  4. as the money supply is decreased the interest rate will increase and the price of both UK exports and UK imports will rise