Please correct answer and don't use hand rating Consider two economies, Canada and theU.S. Canada is a small open economy andexchange rate is quoted as the number of U.S.$ per C$, i.e., EUS$/C$.a) Suppose at the current exchange rate,Canada has a balance of payments deficit.If Canada adopts a flexible exchange rate,what happens to the US$/C$ exchangerate? Explain in words with the aid of asupply-demand diagram for C$ (Be sure toidentity what happens before and after theadjustment on your diagram)b) After the adjustment mentioned inpart (a), the foreign exchange market is inequilibrium. Suppose there is a change in theconsumption preference such that householdsin both Canada and the U.S. want to consumemore American goods. What happens tothe US$/C$ exchange rate? What happensto Canada's BOP? Explain with the aid ofanother supplydemand diagram for C$, and besure to discuss the adjustment in the BOP(i.e., what happens to different components ofthe BOP)2:16 pm

Part (a): Impact of a Balance of Payments (BOP) Deficit in Canada on Exchange Rates Scenario:Canada…

Answered: Consider two economies, Canada and the…

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter29: International Finance

Section: Chapter Questions

Problem 8P

See similar textbooks

Similar questions

State whether each of the following events Involves a financial flow to the Mexican economy or a financial flow out of the Mexican economy: Mexico Imports sen4ces from Japan Mexico exports goods to Canada U.S. investors receive a return from past financial investments in Mexico
Imagine that the economy of Germany finds itself in the following situation: the government budget has a surplus of 1 of Germanys GDP; private savings is 20 of GDP; and physical investment is 18 of GDP. Based on the national saving and investment identity, what is the current account balance? If the government budget surplus falls to zero, how will this affect the current account balance?
If foreign investors buy more U.S. stocks and bonds, how would that show up in the current account balance?
If the trade deficit of the United States increases, how is the current account balance affected?
Table 23.7 provides some hypothetical data on macroeconomic accounts for three countries represented by A. B, and C and measured in billions of currency units. In Table 23.7, private household saving is SH, tax revenue is T, government spending is G, and investment spending is Calculate the trade balance and the net inflow of foreign saving for each country. State whether each one has a trade surplus or deficit (or balanced trade). State whether each is a net lender or borrower internationally and explain.
The GDP for the United States is 18,036 billion and its current account balance is 484 billion. What percent of GDP is the current account balance?
Is a country for which imports and exports comprise a large fraction of the GDP more likely to adopt a flexible exchange rate or a fixed (hard peg) exchange rate?
In 2001, the United Kingdoms economy exported goods worth 192 billion and services worth another 77 billion. It imported goods worth 225 billion and services worth Â£66 billion. Receipts of income from abroad were 140 billion while income payments going abroad were 131 billion. Government transfers from the United Kingdom to the rest of the world were 23 billion, while various U.K government agencies received payments of 16 billion from the rest of the world. Calculate the U.K. merchandise trade deficit for 2001. Calculate the current account balance for 2001. Explain how you decided whether payments on foreign investment and government transfers counted on the positive or the negative side of the current account balance for the United Kingdom in 2001.
Explain briefly whether each of the following would be more likely to lead to a higher level of trade for an economy, or a greater imbalance of trade for an economy. Living In an especially large country Having a domestic investment rate much higher than the domestic savings rate Having many other large economies geographically nearby Having an especially large budget deficit Having countries with a tradition of strong protectionist legislation shutting out imports
Many think that the size of a trade deficit is due to a lack of competitiveness of domestic sectors, such as autos. Explain why this is not true.
Why does the trade balance and the current account balance track so closely together over time?
Occasionally, a government official will argue that a country should strive for both a trade surplus and a healthy inflow of capital from abroad. Is this possible?

SEE MORE QUESTIONS

Recommended textbooks for you

Exploring Economics

Economics

ISBN:

9781544336329

Author:

Robert L. Sexton

Publisher:

SAGE Publications, Inc

Principles of Economics 2e

Economics

ISBN:

9781947172364

Author:

Steven A. Greenlaw; David Shapiro

Publisher:

OpenStax

Macroeconomics: Private and Public Choice (MindTa…

Economics

ISBN:

9781305506756

Author:

James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:

Cengage Learning

Exploring Economics

Economics

ISBN:

9781544336329

Author:

Robert L. Sexton

Publisher:

SAGE Publications, Inc

Principles of Economics 2e

Economics

ISBN:

9781947172364

Author:

Steven A. Greenlaw; David Shapiro

Publisher:

OpenStax

Macroeconomics: Private and Public Choice (MindTa…

Economics

ISBN:

9781305506756

Author:

James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:

Cengage Learning

Economics: Private and Public Choice (MindTap Cou…

Economics

ISBN:

9781305506725

Author:

James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:

Cengage Learning

Economics:

Economics

ISBN:

9781285859460

Author:

BOYES, William

Publisher:

Cengage Learning

MACROECONOMICS

Economics

ISBN:

9781337794985

Author:

Baumol

Publisher:

CENGAGE L

SEE MORE TEXTBOOKS