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

Exercise 3

Refer to the following table, in which Q d is the quantity of loonies demanded, P is the dollar price of loonies, Q s is the quantity of loonies supplied in year 1, and Q s is the quantity of loonies supplied in year 2. All quantities are in billions and the dollar-loonie exchange rate is fully flexible.

a. What is the equilibrium dollar price of loonies in year 1
b. What is the equilibrium dollar price of loonies in year 2
c. Did the loonie appreciate or did it depreciate relative to the dollar between years 1 and 2
d. Did the dollar appreciate or did it depreciate relative to the loonie between years 1 and 2
e. Which one of the following could have caused the change in relative values of the dollar (used in the United States) and the loonie (used in Canadia) between years 1 and 2: (1) More rapid inflation in the United States than in Canadia, (2) an increase in the real interest rate in the United States but not in Canadia, or (3) faster income growth in the United States than in Canadia.