Exam 10: Trading Dollars for Dollars Exchange Rates and Payments With the Rest of the World

The two main items on the financial account are Canadian investments in R.O.W. and R.O.W. investments in Canada.

The export effect suggests that when the exchange rate rises, demand for Canadian exports increases.

A recessionary gap results from

When Canadian real GDP decreases, demand for Canadian dollars in the FOREX market increases.

Suppose Canada has a zero balance (no surplus or deficit) on the both the current account and on the capital account. Then Canadian businesses import new machinery from Italy, financing that increase by borrowing from Japan. On Canada's balance of payments accounts there is now a current account

Which statement about the balance of payments accounts is false?

When Canadian real GDP decreases, the import effect alone causes the Canadian dollar to depreciate.

Which statement about the balance of payments accounts is false?

An appreciating Canadian dollar causes inflation in Canada.

According to the law of supply for Canadian dollars, as the exchange rate

An appreciating Canadian dollar causes a(n)

A fall in the exchange rate is called a currency depreciation.

When the Canadian money supply increases, the

Suppose purchasing power parity (PPP) depends only on hamburgers. The exchange rate is C$1.00 = US$0.70 and hamburger prices are C$2.00 in Canada and US$1.50 in the U.S. PPP suggests that the exchange rate is undervalued.

As the dollar weakens, unemployment decreases.

Suppose purchasing power parity (PPP) depends only on hamburgers. The exchange rate is C$1.00 = US$0.80 and hamburger prices are C$2.00 in Canada and US$1.50 in the U.S. PPP suggests that the

Suppose purchasing power parity (PPP) depends only on hamburgers. The exchange rate is C$1.00 = US$0.80 and hamburger prices are C$2.00 in Canada. PPP suggests that the price of a hamburger in the U.S. should be US$1.60.

When there is a current account surplus there is a capital account surplus.

Purchasing power parity assumes all products and services are traded easily and without cost across borders.

An American investor who buys a Government of Canada bond increases the supply of Canadian dollars in the foreign exchange market.