Canadian dollar and argued that the immediate effects would be (among other things) 。 a dramatic rise in exports o a dramatic fall in imports o a large net inflow of new foreign investment. a. What could the Bank of Canada do to generate a 20-percent depreciation of the Canadian dollar? The Bank of Canada would have to O A. lower the pattern of Canadian inflation relative to average world inflation. OB. enter the foreign-exchange market and sell amounts of foreign exchange determined by market. C. enter the foreign-exchange market and continue to buy massive amounts of foreign exchange. OD. make no transactions adjusting the exchange rate to clear the foreign-exchange market. b. Would the action necessary in part (a) be consistent with the Bank's stated commitment to keeping inflation close to the 2-percent target? Explain. Actions by the Bank of Canada to intervene in the foreign-exchange market by buying foreign exchange are O A. consistent with its efforts to keep inflation close to the 2-percent target as Canadian money demand will change directly. OB. likely to be inconsistent with its efforts to keep inflation close to the 2-percent target as Canadian money supply will increase. OC. inconsistent with its efforts to keep inflation close to the 2-percent target as the official financing account could not be balanced by surplus items in the rest of the accounts. OD. consistent with its efforts to keep inflation close to the 2-percent target as it can adjust its monetary policy.
Canadian dollar and argued that the immediate effects would be (among other things) 。 a dramatic rise in exports o a dramatic fall in imports o a large net inflow of new foreign investment. a. What could the Bank of Canada do to generate a 20-percent depreciation of the Canadian dollar? The Bank of Canada would have to O A. lower the pattern of Canadian inflation relative to average world inflation. OB. enter the foreign-exchange market and sell amounts of foreign exchange determined by market. C. enter the foreign-exchange market and continue to buy massive amounts of foreign exchange. OD. make no transactions adjusting the exchange rate to clear the foreign-exchange market. b. Would the action necessary in part (a) be consistent with the Bank's stated commitment to keeping inflation close to the 2-percent target? Explain. Actions by the Bank of Canada to intervene in the foreign-exchange market by buying foreign exchange are O A. consistent with its efforts to keep inflation close to the 2-percent target as Canadian money demand will change directly. OB. likely to be inconsistent with its efforts to keep inflation close to the 2-percent target as Canadian money supply will increase. OC. inconsistent with its efforts to keep inflation close to the 2-percent target as the official financing account could not be balanced by surplus items in the rest of the accounts. OD. consistent with its efforts to keep inflation close to the 2-percent target as it can adjust its monetary policy.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:In 2015, a letter to a Canadian national newspaper argued that "the economy of this once wonderful country is in the sewer and the politicians keep on tinkering, not knowing how to fix it." The letter proposed a 20-percent depreciation of the
Canadian dollar and argued that the immediate effects would be (among other things)
o a dramatic rise in exports
o a dramatic fall in imports
。 a large net inflow of new foreign investment.
a. What could the Bank of Canada do to generate a 20-percent depreciation of the Canadian dollar?
The Bank of Canada would have to
○ A. lower the pattern of Canadian inflation relative to average world inflation.
B. enter the foreign-exchange market and sell amounts of foreign exchange determined by market.
C. enter the foreign-exchange market and continue to buy massive amounts of foreign exchange.
OD. make no transactions adjusting the exchange rate to clear the foreign-exchange market.
b. Would the action necessary in part (a) be consistent with the Bank's stated commitment to keeping inflation close to the 2-percent target? Explain.
Actions by the Bank of Canada to intervene in the foreign-exchange market by buying foreign exchange are
A. consistent with its efforts to keep inflation close to the 2-percent target as Canadian money demand will change directly.
OB. likely to be inconsistent with its efforts to keep inflation close to the 2-percent target as Canadian money supply will increase.
○ C. inconsistent with its efforts to keep inflation close to the 2-percent target as the official financing account could not be balanced by surplus items in the rest of the accounts.
D. consistent with its efforts to keep inflation close to the 2-percent target as it can adjust its monetary policy.
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