Recent Question

What is the purchasing power parity exchange rate 1. Suppose that in mid-1990 one U.S. dollar bought 1.1 Canadian dollars and in mid-1992 it bought 1.2 Canadian dollars. During this period the annual rate of inflation in the 128 U.S. was 5 percent and in Canada was 8 percent. During this period the U.S. real exchange rate has a) increased by 8% or more b) increased by less than 8% c) decreased by 8% or more d) decreased by less than ...

Other / Other 11 May 2016

If we are at full employment and the rate of growth of our money supply increases 1. If the U.S. money growth rate increases by two percentage points, then under a fixed exchange rate when equilibrium is reattained a) Canada's nominal and real exchange rates should be higher b) Canada's nominal and real exchange rates should be constant c) Canada's nominal exchange rate should be higher and real exchange rate constant d) Canada's nom ...

Other / Other 11 May 2016

The adjustment responsibilities referred to are that surplus and deficit countries must 1. "While the table shows that there are more countries against which the U.S. dollar has appreciated over the past 12 months rather than depreciated, the extra local currency that a fixed U.S. dollar outlay will buy is not necessarily a great windfall to the U.S. traveler." The U.S. traveler may not find this to be a windfall because it has been offse ...

Other / Other 11 May 2016

What must be happening to cause New Zealand rates to fall below those of Australia and the U.S 1. "Canadians must convince investors and speculators that the Canadian dollar will hold its value. For the moment, that means Canada must decisively match U.S. interest rates. Paradoxically, in the past Canada has usually ended up with the worst of both worlds: higher interest rates and a devalued dollar." This worst of both worlds most likely ...

Other / Other 11 May 2016

The Canadian dollar strengthened because 1. If monetary policy targets on an unemployment level less than the natural rate of unemployment, then over time a) the interest rate should rise b) the exchange rate should rise c) both real and nominal wages should fall d) the interest rate and GDP should remain roughly constant "The Bank of Canada began easing monetary conditions in response to the recession and the resulting substantia ...

Other / Other 11 May 2016

Assuming a fixed exchange rate what is the Canadian nominal interest rate 1. "Analysts are wondering if Canadian yields can fall while U.S. yields are rising." This is a) impossible if the risk premium is constant b) possible if Canadian inflation falls while U.S. inflation rises c) possible if Canadian money growth exceeds U.S. money growth d) impossible because real interest rates are approximately equal everywhere 2. "Greensp ...

Other / Other 11 May 2016

When the Canadian economy has settled to a new equilibrium after this change 1. If the Canadian interest rate is 10%, the U.S. rate is 15%, the risk differential is 2% and the two economies are in mutual equilibrium a) the $C is appreciating b) the $C is depreciating c) Canadian exports are falling and imports rising d) both a) and c) 2. Suppose Canada and the U.S. are in equilibrium with a flexible exchange rate and a risk premium ...

Other / Other 11 May 2016

What is the U.S. money growth rate 1. "The central bank can defend the long-term external value of our currency only by defending its internal value." The rationale behind this statement is that high exchange rates result from a) high prices b) low inflation c) high inflation d) low real interest rates 2. "There is no historical evidence of countries finding enduring prosperity in a strategy of currency devaluation: We cannot devalue ...

Other / Other 11 May 2016

What is meant by “improved terms of trade” 1. “Aside from the much-needed interest rate relief, the U.S. economy will continue to benefit from significantly improved terms of trade.” What is meant by “improved terms of trade”? a) a balance of trade surplus b) lower tariffs c) higher world prices for our exports relative to our imports d) a higher exchange rate 2. “The dollar’s d ...

Other / Other 11 May 2016

The governor of the Bank of Canada urged Canadians today to continue the fight 1. "The governor of the Bank of Canada urged Canadians today to continue the fight against inflation, but warned they cannot expect any significant drop in interest rates until the U.S. takes convincing action to reduce its budget deficit." Despite this statement, the Canadian interest rate could fall significantly if a) the risk premium were to rise b) the C ...

Other / Other 11 May 2016