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

A decreasing Canadian inflation rate differential causes the Canadian dollar to appreciate because our exports become relatively cheaper in international markets.

As the Canadian dollar weakens, Canadian

Which statement about the balance of payments accounts is true?

A recessionary gap can be caused by an appreciation of the Canadian dollar and decreased exports.

The Canadian dollar appreciated against the U.S. dollar between 1991 and 2002.

When the Canadian money supply decreases, the

A weaker Canadian dollar hurts

Which activity is a negative entry on the Canadian financial account?

Flows of Canadian dollars into Canada are positive numbers on the balance of payments accounts.

Currency speculators sell Canadian dollars if they think that Canadian interest rates will rise.

Current account balance + financial account balance + statistical discrepancy = zero.

The economic force that causes opposite effect on the value of the Canadian dollar is changes in

To understand the pluses and minuses on Canada's balance of payments accounts, focus on the flows of products into (positive) and out of (negative) Canada.

An excess demand for Canadian dollars in the foreign exchange market causes the Canadian dollar to

The economic force that reinforces the effect of other forces on the value of the Canadian dollar is changes in

A lower inflation rate in Canada relative to other countries causes the Canadian dollar to appreciate because

When there is a surplus of Canadian dollars in the foreign exchange market,

Suppose purchasing power parity (PPP) depends only on hamburgers. The exchange rate is C$1.00 = US$0.80 and hamburger prices are C$1.80 in Canada and US$2.00 in the U.S. PPP suggests that the

Which statement best describes purchasing power parity?

A current account deficit means that Canadian spending on imports from R.O.W. is greater than R.O.W. spending on Canadian exports.