Question

In: Economics

What increases the supply of Canadian dollars in the foreign exchange market? A) An increase in...

What increases the supply of Canadian dollars in the foreign exchange market?

A) An increase in demand for imports from R.O.W. by Canadians.

B) A decrease in demand for Canadian exports by non-Canadians.

C) The Canadian dollar is expected to appreciate next year.

D) U.S. interest rates fall.

E) None of the above.

A recessionary gap results from

A) depreciation of the C$ leading to decreased imports.

B) appreciation of the C$ leading to increased exports.

C) appreciation of the C$ leading to decreased exports.

D) depreciation of the C$ leading to increased imports.

E) depreciation of the C$ leading to decreased exports.

As the Canadian dollar strengthens, Canadian

A) real GDP increases.

B) inflation decreases.

C) exports increase.

D) imports decrease.

E) unemployment decreases.

Expert Solution

Hi,

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Question:

Answer:

What increases the supply of Canadian dollars in the foreign exchange market?

A) An increase in demand for imports from R.O.W. by Canadians.

When import increases then its increased the supply of domestic currency and demand of foreign currency because importer pay the bill in exporter's currency. So, here Canadian will buy the foreign currency and sell domestic currency so, its increases the supply of Canadian dollars in the foreign exchange market.

A recessionary gap results from-

A) depreciation of the C$ leading to decreased imports.

A recessionary gap is a macroeconomic concept where a country's real GDP is lower than it's nominal GDP at full employment. A real GDP decrease is a inflation adjusted GDP. So, increasing inflation decrease the value of domestic currency that depreciate the domestic currency. When currency depreciate then export become more cheaper and import become expensive so, depreciation of the C$ leading to decreased imports.

As the Canadian dollar strengthens, Canadian-

B) inflation decreases.

increasing inflation decrease the value of domestic currency that depreciate the domestic currency and vice versa. Strengthen CAD means CAD appreciated so, the purchasing power of CAD increased. Increasing purchasing power of CAD means price level decreased, decreasing price level means low inflation.

Thank You

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