Question

In March 2009, the Canadian dollar was worth $0.78 U.S. dollars. In April 2011, the Canadian dollar was worth $1.06 U.S. dollars. What effect would this increase have on the trade balance between the United States and Canada?

a) Canadian imports will rise and Canadian exports will fall, so the Canadian trade balance will fall and the U.S. trade balance will rise.

b) Canadian imports will fall and Canadian exports will rise, so the Canadian trade balance will rise and the U.S. trade balance will fall.

c) Canadian imports will rise and Canadian exports will fall, so the Canadian trade balance will rise and the U.S. trade balance will fall.

d) Canadian imports will fall and Canadian exports will rise, so the Canadian trade balance will fall and the U.S. trade balance will rise.

Answer 1

Ans: a) Canadian imports will rise and Canadian exports will fall, so the Canadian trade balance will fall and the U.S. trade balance will rise.

Explanation:

In March 2009, the Canadian dollar = $0.78 U.S. dollars

In April 2011, the Canadian dollar = $1.06 U.S. dollars.

It cleared that in April 2011 , the Canadian dollar was  appreciated . It means increase in the value of Canadian dollar. As a result Canadian imports will rise due to decrease in the value of U. S dollars and exports will decline due increase in the value of Canadian dollars. So the Canadian trade balance will fall because the value of its imports are greater than exports. As we know trade balance is the difference between the value of total exports and total imports( Trade balance = Exports - Imports). At the same time , the U. S trade balance will increase because the value of its exports  are greater than imports.