Understanding the rise and fall of exchange rates in Britain between the 1970-1980's.

In the late 1970s Britain seemed to have struck it rich. Having developed its North Sea oil-producing fields in earlier years, 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.

Use the clues given about the British economy to explain the rise and fall of the pound's real effective exchange rate between 1978 and 1984. Pay particular attention to the role of nontradeables.