What does the SPICED mnemonic describe?

• A. The effect of a strong pound on imports and exports
• B. The effect of interest rate changes on borrowing
• C. The relationship between inflation and unemployment
• D. The impact of VAT on consumer prices

Answer: (A)

The main idea here is how changes in the exchange rate affect trade—specifically how a stronger domestic currency influences imports and exports. When the pound strengthens, imports become cheaper for UK buyers, so demand for imports tends to rise. At the same time, UK goods become more expensive for foreign buyers, so demand for exports tends to fall. The SPICED mnemonic is used to remember this exact relationship: a strong pound leads to increased imports and decreased exports. That’s why this option is the best fit. The other options relate to interest rates, inflation and unemployment, or VAT, which are different concepts and not what SPICED describes.