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Figure 14.2 Figure 14.2 Alt text for Figure 14.2: In figure 14.2, a graph illustrates the quantity of dollars traded against the exchange rate. Long description for Figure 14.2: The x-axis is labelled, quantity of dollars traded in millions per day, and the y-axis is labelled, exchange rate, British pound against Canadian dollars, with points 0.46 and British pound 0.50 marked.2 straight line supply curves, S1 and S2, slope up from the bottom left corner to the top right corner.Curve S2 is plotted to the right of curve S1.Demand curves D1 and D2 are straight line curves which slope down from the top left corner to the bottom left corner, with curve D2 plotted to the left of curve D1.Curves S1 and S2 intersect demand curves D1 and D2.The intersection point of curves S1 and D1 is connected to its corresponding y-axis value of British pound 0.50 with a dotted line.The intersection point of curves S2 and D2 is connected to its corresponding y-axis value of 0.46 with a dotted line.The intersection point of curves S1 and D1 is connected to its corresponding y-axis value of British pound 0.50 with a dotted line.A down pointing arrow indicates the difference between these values on the y-axis.arrow is shown between the 2 dotted lines.A right pointing arrow indicates the change from curve S1 to curve S2, and a left pointing arrow indicates the change from curve D1 to curve D2. -Refer to Figure 14.2. Consider the market for Canadian Dollars against the British pound shown in the graph above.From this graph we can conclude that the dollar price of a British pound has ________ to ________ dollars per pound A) decreased; 0.46 B) increased; 2.17 C) decreased; 2.00 D) increased; 0.50 E) decreased; 0.04 Alt text for Figure 14.2: In figure 14.2, a graph illustrates the quantity of dollars traded against the exchange rate. Long description for Figure 14.2: The x-axis is labelled, quantity of dollars traded in millions per day, and the y-axis is labelled, exchange rate, British pound against Canadian dollars, with points 0.46 and British pound 0.50 marked.2 straight line supply curves, S1 and S2, slope up from the bottom left corner to the top right corner.Curve S2 is plotted to the right of curve S1.Demand curves D1 and D2 are straight line curves which slope down from the top left corner to the bottom left corner, with curve D2 plotted to the left of curve D1.Curves S1 and S2 intersect demand curves D1 and D2.The intersection point of curves S1 and D1 is connected to its corresponding y-axis value of British pound 0.50 with a dotted line.The intersection point of curves S2 and D2 is connected to its corresponding y-axis value of 0.46 with a dotted line.The intersection point of curves S1 and D1 is connected to its corresponding y-axis value of British pound 0.50 with a dotted line.A down pointing arrow indicates the difference between these values on the y-axis.arrow is shown between the 2 dotted lines.A right pointing arrow indicates the change from curve S1 to curve S2, and a left pointing arrow indicates the change from curve D1 to curve D2. -Refer to Figure 14.2. Consider the market for Canadian Dollars against the British pound shown in the graph above.From this graph we can conclude that the dollar price of a British pound has ________ to ________ dollars per pound


A) decreased; 0.46
B) increased; 2.17
C) decreased; 2.00
D) increased; 0.50
E) decreased; 0.04

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When net capital flows are negative,


A) capital inflows are less than capital outflows.
B) net foreign investment is negative.
C) the current capital account balance is negative.
D) capital outflows are less than capital inflows.
E) A and B are both correct.

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If Canada is a "net borrower" from abroad,


A) Canada must be exporting more than it is importing.
B) net capital flows must be negative.
C) domestic saving is less than domestic investment.
D) net foreign investment must be positive.
E) Canadian incomes must be falling.

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Suppose the Bank of Canada pursues a policy that leads to higher interest rates in Canada.How will this policy affect real GDP in the short run given that Canada is an open economy? This policy


A) reduces investment spending, consumption spending and net exports, all of which reduce GDP.
B) reduces investment spending and consumption spending, both of which reduce GDP.Net exports rise, which increases GDP.
C) reduces investment spending and consumption spending, both of which reduce GDP.Net exports fall, which increases GDP.
D) increases investment spending, consumption spending, and net exports, all of which increase GDP.
E) reduces investment spending and net exports, both of which raise GDP. Consumption spending rises, which increases GDP.

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An increase in the demand for Canadian-made goods will


A) increase the supply of dollars on the foreign exchange market.
B) decrease the supply of dollars on the foreign exchange market.
C) increase the demand for dollars on the foreign exchange market.
D) decrease the demand for dollars on the foreign exchange market.
E) have no impact on the foreign exchange market.

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If the current account is in surplus and the capital account is zero, then


A) the financial account must be in deficit.
B) the balance of trade must be in deficit.
C) the balance of payments must be in deficit.
D) there is a capital inflow.
E) the balance of services must be in deficit.

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If the Canadian dollar appreciates, how will aggregate demand in Canada be affected?


A) Aggregate demand will increase as exports increase and imports decrease.
B) Aggregate demand will increase as imports increase and exports decrease.
C) Aggregate demand will decrease as imports increase and exports decrease.
D) Aggregate demand will decrease as exports increase and imports decrease.
E) Aggregate demand will become more sensitive to price level.

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A real appreciation of the Canadian dollar is caused by either a nominal appreciation of the Canadian dollar, a rise in the foreign price level, or a fall in the Canadian price level.

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Figure 14.4 Figure 14.4 Alt text for Figure 14.4: In figure 14.4, a graph illustrates the quantity of dollars traded against the exchange rate. Long description for Figure 14.4: The x-axis is labelled, quantity of dollars traded, and the y-axis is labelled, exchange rate, euros against dollars.2 supply curves; S1 and S2, and 2 demand curves; D1 and D2 are plotted.Supply curve S1 is a straight line which slopes up from the bottom left corner to the top right corner.It passes through points A and B.Supply curve S2 is a straight line with the same slope as curve S1, but is plotted to the right.Curve S2 passes through points D and C.Demand curve D1 is a straight line which slopes down from the top left corner to the bottom right corner.Curve D1 intersects curve S1 at point A, and curve S2 at point D.Demand curve D2 has the same slope as curve D1, but is plotted to the right Curve D2 intersects curve S1 at point B, and curve S2 at point C. -Refer to Figure 14.4.Currency speculators believe that the value of the euro will decrease relative to the Canadian dollar.Assuming all else remains constant, how would this be represented? A) Supply would decrease, demand would decrease and the economy would move from B to C to D. B) Supply would increase, demand would decrease and the economy would move from C to B to A. C) Supply would decrease, demand would increase and the economy would move from A to D to C. D) Supply would increase, demand would increase and the economy would move from D to A to B. Alt text for Figure 14.4: In figure 14.4, a graph illustrates the quantity of dollars traded against the exchange rate. Long description for Figure 14.4: The x-axis is labelled, quantity of dollars traded, and the y-axis is labelled, exchange rate, euros against dollars.2 supply curves; S1 and S2, and 2 demand curves; D1 and D2 are plotted.Supply curve S1 is a straight line which slopes up from the bottom left corner to the top right corner.It passes through points A and B.Supply curve S2 is a straight line with the same slope as curve S1, but is plotted to the right.Curve S2 passes through points D and C.Demand curve D1 is a straight line which slopes down from the top left corner to the bottom right corner.Curve D1 intersects curve S1 at point A, and curve S2 at point D.Demand curve D2 has the same slope as curve D1, but is plotted to the right Curve D2 intersects curve S1 at point B, and curve S2 at point C. -Refer to Figure 14.4.Currency speculators believe that the value of the euro will decrease relative to the Canadian dollar.Assuming all else remains constant, how would this be represented?


A) Supply would decrease, demand would decrease and the economy would move from B to C to D.
B) Supply would increase, demand would decrease and the economy would move from C to B to A.
C) Supply would decrease, demand would increase and the economy would move from A to D to C.
D) Supply would increase, demand would increase and the economy would move from D to A to B.

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You're traveling in Ireland and are thinking about buying a new digital camera.You've decided you'd be willing to pay $125 for a new camera, but cameras in Ireland are all priced in euros.If the camera you're looking at costs 115 euros, under which of the following exchange rates would you be willing to purchase the camera? (Assume no taxes or duties are associated with the purchase.)


A) 0.56 euros per dollar
B) 0.66 euros per dollar
C) 0.76 euros per dollar
D) 0.87 euros per dollar
E) 0.92 euros per dollar

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Why is the balance of payments always zero?

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If a country spends more on goods and se...

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The impact of crowding out


A) is larger in a closed economy as compared to an open economy.
B) is larger in an open economy as compared to a closed economy.
C) is larger in an open economy as compared to a closed economy when fiscal policy is contractionary.
D) is larger in a closed economy as compared to an open economy when fiscal policy is contractionary.
E) is larger in a closed economy for expansionary fiscal policy, but larger in an open economy for contractionary fiscal policy.

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Many Canadian natural resource companies run mines in other countries. What impact would an expansionary monetary policy undertaken by the Bank of Canada have on these companies?


A) Expansionary monetary policy would encourage these firms to borrow abroad.
B) Expansionary monetary policy would make hiring in Canada easier for these firms.
C) Expansionary monetary policy would raise the tax bill for these firms.
D) Expansionary monetary policy would reduce the value of the profits earned in other countries.
E) Expansionary monetary policy will make it more difficult for these firms to raise funds in Canada.

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How does an increase in the budget deficit affect the demand for dollars and the supply of dollars on the foreign exchange market?


A) The demand for dollars falls, and the supply of dollars falls.
B) The demand for dollars rises, and the supply of dollars rises.
C) The demand for dollars rises, and the supply of dollars falls.
D) The demand for dollars falls, and the supply of dollars rises.

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When the market value of the Canadian dollar falls relative to other currencies around the world, we say that


A) the Canadian dollar has appreciated.
B) the Canadian dollar has depreciated.
C) the demand for Canadian dollars has decreased.
D) the supply of Canadian dollars has decreased.
E) the real exchange rate fell.

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If Québecers decrease their purchases of French champagne, assuming all else remains constant, this will


A) increase Canada's balance of trade.
B) decrease Canada's net exports.
C) decrease Canada's current account balance.
D) increase Canada's trade deficit.
E) increase Canada's balance of payments.

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If the Canadian dollar depreciates against the Indian rupee,


A) Indian imports to Canada become less expensive.
B) Canadian exports to India become less expensive.
C) Canadian exports to India become more expensive.
D) the value of Indian imports to Canada does not change.
E) Canadian firms profits made in India fall in value.

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If the balance on the current account is $346 billion and the balance on the financial account is -$204 billion, what is the balance on the capital account, assuming no statistical discrepancy?


A) $550 billion
B) $142 billion
C) $0
D) -$142 billion
E) -$204 billion

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Which of the following would result in a trade surplus for Canada?


A) Exports of goods = $450 billion Imports of goods = $400 billion
Exports of services = $200 billion
Imports of services = $250 billion
B) Exports of goods = $450 billion Imports of goods = $450 billion
Exports of services = $200 billion
Imports of services = $250 billion
C) Exports of goods = $450 billion Imports of goods = $460 billion
Exports of services = $200 billion
Imports of services = $100 billion
D) Exports of goods = $450 billion Imports of goods = $490 billion
Exports of services = $200 billion

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Which of the following would cause the dollar to appreciate?


A) an increase in the demand for dollars
B) a decrease in the demand for dollars
C) an increase in the supply of dollars
D) an increase in the demand for imports from foreign countries
E) an increase in demand for imports

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