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

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a. If the exchange rate changes from $1.70 per British pound (₤1) to $1.68 per ₤1, has the pound (₤) appreciated or depreciated? Has the dollar appreciated or depreciated? b. What happens to the ₤-price that British residents pay for a $500 U.S. export good due to the exchange rate change above? c. What happens to the $-price that U.S. residents pay for a ₤1200 import good from Britain? d. How do these changes affect the economic welfare of U.S. exporters and U.S. importers? 2. a. If the exchange rate changes from $1.70 per British pound (₤1) to $1.72 per ₤1, has the pound (₤) appreciated or depreciated? Has the dollar appreciated or depreciated? b. What happens to the ₤-price that British residents pay for a $500 U.S. export good due to the exchange rate change above? c. What happens to the $-price that U.S. residents pay for a ₤1200…
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