Question 1

If the exchange rate changes from US$$0.60 per C1 to US$1.00 per C1$$, what happens to the price of a month's supply of Tim Hortons coffee in Canada for an American consumer?

Accepted Answer

It becomes more expensive in US dollars.

Question 2

According to the law of demand for Canadian dollars, what happens to the quantity demanded of C$ as the exchange rate rises?

Accepted Answer

The quantity demanded of C$ decreases.

Question 3

Suppose the exchange rate is US$$0.90 per C1. At $$this rate, the quantity demanded and supplied of Canadian dollars are both 60 billion per month. What does this indicate about the foreign exchange market?

Accepted Answer

The market is in equilibrium.

Question 4

If the Canadian dollar appreciates, which of the following is most likely to occur?

Accepted Answer

Canadian exports become more expensive for the rest of the world.

Question 5

Given the following exchange rates: C$$1 = US0.90$$, what is the reciprocal exchange rate (US$$1 = ? C$$)?

Accepted Answer

$$US\1 = C$$\$$1.11$$

Question 6

If Canadian interest rates rise relative to other countries, what is the expected effect on the Canadian dollar?

Accepted Answer

The Canadian dollar will appreciate.

Question 7

Which of the following best describes the law of supply for Canadian dollars?

Accepted Answer

As the exchange rate rises, the quantity supplied of C$ increases.

Question 8

If the Canadian inflation rate rises relative to other countries, what is the likely effect on the exchange rate of the Canadian dollar?

Accepted Answer

The Canadian dollar will depreciate.

Question 9

Suppose the world price for Canadian resource exports rises. What is the most likely effect on the Canadian dollar?

Accepted Answer

The Canadian dollar will appreciate.

Question 10

If the exchange rate is set above equilibrium, what will occur in the foreign exchange market for Canadian dollars?

Accepted Answer

There will be a surplus of Canadian dollars.

Question 11

Which of the following is a direct result of an appreciating Canadian dollar on the Canadian economy?

Accepted Answer

Decrease in net exports and real GDP.

Question 12

Currency speculators expect the Canadian dollar to rise in the future. What is the likely immediate effect in the foreign exchange market?

Accepted Answer

Increase in demand for Canadian dollars.

Question 13

If Canadian real GDP increases, what is the net effect on the Canadian dollar, considering both investor confidence and import demand?

Accepted Answer

The Canadian dollar appreciates.

Question 14

Which of the following is NOT a likely cause of Canadian dollar appreciation?

Accepted Answer

Decrease in world prices for Canadian resource exports.

Question 15

If the Canadian dollar depreciates, what is the expected effect on Canadian imports?

Accepted Answer

Imports become more expensive for Canadians.

Question 16

Suppose the exchange rate falls below equilibrium. What will happen in the foreign exchange market for Canadian dollars?

Accepted Answer

There will be a shortage of Canadian dollars.

Question 17

Which of the following best describes the international transmission mechanism when the Canadian dollar appreciates?

Accepted Answer

It is a negative aggregate demand shock.

Question 18

If the Canadian dollar depreciates, which group is most likely to benefit?

Accepted Answer

Canadian exporters.

Question 19

Which of the following equations correctly shows the relationship between the demand for one currency and the supply of another?

Accepted Answer

$$	ext{Demand for C\$$} = 	ext{Supply of US\$$}$$

Question 20

Which of the following is true regarding the effects of fluctuating exchange rates?

Accepted Answer

Appreciation and depreciation of the Canadian dollar create trade-offs between different groups.

Chapter 11 for final exam studying

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