Macroeconomics 20th Edition by Campbell McConnell ,Stanley Brue ,Sean Flynn

Exercise 12

Return to problem 3 and assume the exchange rate is fixed against the dollar at the equilibrium exchange rate that occurs in year 1. Also suppose that Canadia and the United States are the only two countries in the world. In year 2, what quantity of loonies would the government of Canadia have to buy or sell to balance its capital and financial account with its current account? In what specific account would this purchase or sale show up in Canadia's balance-of-payments statement: Foreign purchases of assets in Canadia or Canadia's purchases of assets abroad? Would this transaction increase Canadia's stock of official reserves or decrease its stock?