In the late 1970s Britain seemed to have struck it rich. Having developed its North Sea oil-producing fields in earlier years, Britain suddenly found its real income higher as a result of a dramatic increase in world oil prices in 1979-1980. In the early 1980s, however, oil prices receded as the world economy slid into a deep recession and world oil demand faltered. In the following chart, we show index numbers for the average real exchange rate of the pound against several foreign currencies. (Such average index numbers are called real effective exchange rates.) A rise in one of these numbers indicates a real appreciation of the pound, that is, an increase in Britain's price level relative to the average price level abroad measured in pounds. A fall is a real depreciation. Real Effective Exchange Rate of the Pound Sterling, 1976-1984 (1980 = 100) 1976 1977 1978 1979 1980 1981 1982 1983 1984 68.3 66.5 72.2 81.4 100.0 102.8 100.0 92.5 89.8 Which of the following best explains the rise of the pound's real effective exchange rate from 1977 through 1981? A. The run-up in world oil prices "strained" oil consuming states, forcing them to curtail their purchases of real output, the majority of which was home produced. B. The run-up in world oil prices entailed a significant transfer of income to oil producing states, including Britain. This windfall income gain, in turn, fueled a rise in the demand for UK goods. OC. U.K. output increased relative to "rest-of-world" output. D. Both A and B are correct. In the late 1970s Britain seemed to have struck it rich. Having developed its North Sea oil-producing fields in earlier years, Britain suddenly found its real income higher as a result of a dramatic increase in world oil prices in 1979-1980. In the early 1980s, however, oil prices receded as the world economy slid into a deep recession and world oil demand faltered. In the following chart, we show index numbers for the average real exchange rate of the pound against several foreign currencies. (Such average index numbers are called real effective exchange rates.) A rise in one of these numbers indicates a real appreciation of the pound, that is, an increase in Britain's price level relative to the average price level abroad measured in pounds. A fall is a real depreciation. Real Effective Exchange Rate of the Pound Sterling, 1976-1984 (1980 = 100) 1976 1977 1978 1979 1980 1981 1982 1983 1984 68.3 66.5 72.2 81.4 100.0 102.8 100.0 92.5 89.8 Which of the following best explains the rise of the pound's real effective exchange rate from 1977 through 1981? A. The run-up in world oil prices "strained" oil consuming states, forcing them to curtail their purchases of real output, the majority of which was home produced. B. The run-up in world oil prices entailed a significant transfer of income to oil producing states, including Britain. This windfall income gain, in turn, fueled a rise in the demand for UK goods. OC. U.K. output increased relative to "rest-of-world" output. D. Both A and B are correct.