Question

36. The Canadian dollar appreciates if

A) Canadian real GDP decreases.

B) world prices for Canadian resources fall.

C) Canadian interest rates fall relative to other countries.

D) the Canadian inflation rate rises relative to other countries.

E) speculators believe the Canadian dollar will appreciate in the future.

37. When Canadian interest rates fall the

A) demand curve for Canadian dollars in the foreign exchange market shifts rightward.

B) Canadian inflation rate falls.

C) demand for Canadian exports decreases.

D) supply curve of Canadian dollars in the foreign exchange market shifts leftward.

E) Canadian dollar depreciates.

38. 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.

39. 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.

40. As the Canadian dollar strengthens, Canadian

A) real GDP increases.

B) inflation decreases.

C) exports increase.

D) imports decrease.

E) unemployment decreases

Answer 1

36 Option E

If the potential investors basically the foreign investors see a potential investment market in Canada and higher return the demand for the currency would increase leading to appreciation of Canadian Dollar.

37 Option E

Lower interest rates tend to be unattractive for foreign investment and decrease the currency's relative value.

38 Option A

If the Canadian demand for imports increase, the supply of Canadian dollars in the foreign exchange market increases and the supply curve shifts right.

39 Option D

Recessionary gap occurs when macro equilibrium occurs at a level of GDP less than potential GDP; thus, unemployment is higher than the natural rate. The change in exchange rates affects the financial returns on exported goods. Lower foreign exchange rates mean less income for exporting countries' and further drives a recessionary trend.When the local currency depreciates, imports become more expensive, so locals often buy fewer imported goods.

40 Option B

Currency appreciation usually reduces inflation because imports become cheaper and the lower prices lead to lower inflation. It makes imports more attractive, causing the demand for local products to fall. Local companies usually have to cut costs and increase productivity so they can remain competitive.