The equilibrium dollar price of Canadian dollar.

Question

Want to see more full solutions like this?

Answer 1

Question

Definition Video Definition Point where the demand and supply curves intersect. At the equilibrium price the quantity supplied of a good is equal to the quantity demanded. When the market is not in equilibrium, market surplus or market shortage occurs. The region that is above the price equilibrium indicates market surplus and the region below the price equilibrium indicates market shortage. Video

Chapter 21, Problem 3P

Subpart (a):

To determine

The equilibrium dollar price of Canadian dollar.

Subpart (a):

Expert Solution

Explanation of Solution

The exchange rate is the rate at which one currency is exchanged with another currency. The flexible exchange rate is the most prominent exchange rate system that prevails in the economy. According to the flexible exchange rate system, the exchange rate will be determined by equating the demand for and supply of currency in the exchange rate market. Thus, the exchange rate will keep fluctuating according to the fluctuations in the demand for and supply of money in the market.

The demand for money and supply of money are equated with each other in order to calculate the flexible exchange rate of the economy. From the table given about the first year demand and supply of Canadian dollar, the only price which equates the quantity demanded to the quantity supplied is at price 115. At this price point, the quantity demanded and the quantity supplied of Canadian dollar is equal to 20. Thus, the equilibrium dollar price of Canadian dollar in year 1 is 115.

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Subpart (b):

To determine

The equilibrium dollar price of Canadian dollar.

Subpart (b):

Expert Solution

Explanation of Solution

The year two Canadian dollar supply is given in the fourth column of the table and according to the values of the quantity demanded and the quantity supplied of the Canadian dollar in year 2, we can identify the dollar price which equates the quantity demanded and quantity supplied of the Canadian dollar in year 2 is at 120. At this price point, both the quantity demanded and the quantity supplied are equal to 15. Thus, the equilibrium dollar price of Canadian dollar in year 2 is 120.

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Subpart (c):

To determine

The equilibrium dollar price of Canadian dollar.

Subpart (c):

Expert Solution

Explanation of Solution

The dollar price of Canadian dollar in year 1 was 115 and in year 2 was 120. This shows that the dollar price of Canadian dollar increased from 115 to 120 in the period of one year. This shows us that in order to purchase 1 Canadian dollar, 115 dollars were required in year 1 and it increased to 120 dollars in Year 2. Thus, in one year, the dollar price of Canadian dollar increased by 5 dollars. The process of increasing the value of the domestic currency with regards to the foreign currency is known as appreciation. Thus, Canadian dollar has appreciated relative to the dollar between year 1 and 2.

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Subpart (d):

To determine

The equilibrium dollar price of Canadian dollar.

Subpart (d):

Expert Solution

Explanation of Solution

The dollar price of Canadian dollar increased from year 1 to year 2. This shows that 5 more dollars is required to purchase 1 Canadian dollar in year 2. Thus, the dollar has lost its value by 5. The process of losing the value of the currency related to another is known as depreciation. So, the dollar has depreciated relative to Canadian dollar between year 1 and year 2.

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Subpart (e):

To determine

The equilibrium dollar price of Canadian dollar.

Subpart (e):

Expert Solution

Explanation of Solution

There are many reasons for the relative change in the price of currencies. They can be due to more rapid inflation in the US than in Canada, higher growth rate in the US than in Canada, or an increase in the real interest rate in the US over Canada.

Option (1):

The main reason for the change in the relative values of currencies in the international market is the rapid inflation in the US when compared to Canada. When there is inflation in the US, the prices of the US goods and services will increase and they will become costly in the international market. As a result, the Canada consumers will demand their domestic products due to higher prices of US products. This will reduce the demand for the US dollar. As a result, the dollar will depreciate its value which makes the relative change in the value of two currencies over the period. Thus, option (1) is correct.

Option (2):

When there is a higher interest rate in the US relative to that in Canada, the investors in Canada will shift their investment to the US in order to earn a higher interest income from their investment. This will increase the demand for the dollars and the supply of Canadian dollar, which will result in the appreciation of a dollar in the exchange market. Since the relative change in the situation is depreciation, this option cannot be true. Thus, option (2) is incorrect.

Option (3):

The faster growth of income in US over Canada’s can be a reason for the relative change in the exchange rate of the currencies. But, the higher growth of income will lead to faster growth of the US. This would result in a better rate of interest which will in turn lead to the appreciation of a dollar. Here, it is depreciation. Thus, option (3) is incorrect.

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

Problem 3 Simple Bivariate Regression Consider the following bivariate regression model: NAMEUIN Page 1 of 2 = Hourly Wages, Bo+B₁Education; + & where Education measures the years of experience at the job for an individual and Hourly Wage is the hourly wage in dollars. The subscript i indexes various people. You run a bivariate OLS regression to estimate Bo and B₁. Suppose you estimate B = 10 and B a. 0 = 2 How do you interpret the estimates ßo and ß₁ in this context? (3 points) 1 b. Define the terms "predicted/fitted value" and "residual”. (3 points) c. Suppose that for some individual, the predicted value of Hourly Wage is $20, and the residual is 2. What is the actual Hourly wage for the individual? Show your work. (4 points) d. Suppose that some individual has 10 years of Education, and his actual hourly wage is $35. What is the predicted outcome and residual for this individual? Show your work. (5 points)

Problem 1 The Core Model Suppose you are interested in studying the effect of workers' training (measured by the number of training hours) on employee productivity (measured by output per hour). a. What is the dependent and independent variable in this setting? (2 points) b. How would you write this relationship using the Core Model? (3 points) C. Do you expect the slope coefficient ẞ₁, (which shows relation between teacher's experience and test scores) to be positive or negative? Explain your reasoning. (5 points) d. Name any two factors that are likely included in the error term of your model? (5 points)

Problem 2 Endogeneity Suppose you are interested in how social media usage affects students' academic performance. Consider the following model: GPA; = ßo + ß₁Social Media Hours; + ɛ; where GPA, is the grade point average of a student and Social Media Hours; measures how many hours the student spends on social media every week. Each student is denoted by the subscript i. a. What is the dependent variable Y in this setting? What is the independent variable X in this setting? (4 points) b. What does Bo C. What does ẞ1 = 3 mean? (2 points) = 0.2 mean? (3 points) d. What is the condition for the independent variable Social Media Hours; to be endogenous? (5 points) e. Is the independent variable likely to be endogenous? Why or why not? (3 points) f. If yes, describe a scenario where the independent variable is endogenous. (3 points)

Answer 2

Question

Definition Video Definition Point where the demand and supply curves intersect. At the equilibrium price the quantity supplied of a good is equal to the quantity demanded. When the market is not in equilibrium, market surplus or market shortage occurs. The region that is above the price equilibrium indicates market surplus and the region below the price equilibrium indicates market shortage. Video

Chapter 21, Problem 3P

Subpart (a):

To determine

The equilibrium dollar price of Canadian dollar.

Subpart (a):

Expert Solution

Explanation of Solution

The exchange rate is the rate at which one currency is exchanged with another currency. The flexible exchange rate is the most prominent exchange rate system that prevails in the economy. According to the flexible exchange rate system, the exchange rate will be determined by equating the demand for and supply of currency in the exchange rate market. Thus, the exchange rate will keep fluctuating according to the fluctuations in the demand for and supply of money in the market.

The demand for money and supply of money are equated with each other in order to calculate the flexible exchange rate of the economy. From the table given about the first year demand and supply of Canadian dollar, the only price which equates the quantity demanded to the quantity supplied is at price 115. At this price point, the quantity demanded and the quantity supplied of Canadian dollar is equal to 20. Thus, the equilibrium dollar price of Canadian dollar in year 1 is 115.

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Subpart (b):

To determine

The equilibrium dollar price of Canadian dollar.

Subpart (b):

Expert Solution

Explanation of Solution

The year two Canadian dollar supply is given in the fourth column of the table and according to the values of the quantity demanded and the quantity supplied of the Canadian dollar in year 2, we can identify the dollar price which equates the quantity demanded and quantity supplied of the Canadian dollar in year 2 is at 120. At this price point, both the quantity demanded and the quantity supplied are equal to 15. Thus, the equilibrium dollar price of Canadian dollar in year 2 is 120.

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Subpart (c):

To determine

The equilibrium dollar price of Canadian dollar.

Subpart (c):

Expert Solution

Explanation of Solution

The dollar price of Canadian dollar in year 1 was 115 and in year 2 was 120. This shows that the dollar price of Canadian dollar increased from 115 to 120 in the period of one year. This shows us that in order to purchase 1 Canadian dollar, 115 dollars were required in year 1 and it increased to 120 dollars in Year 2. Thus, in one year, the dollar price of Canadian dollar increased by 5 dollars. The process of increasing the value of the domestic currency with regards to the foreign currency is known as appreciation. Thus, Canadian dollar has appreciated relative to the dollar between year 1 and 2.

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Subpart (d):

To determine

The equilibrium dollar price of Canadian dollar.

Subpart (d):

Expert Solution

Explanation of Solution

The dollar price of Canadian dollar increased from year 1 to year 2. This shows that 5 more dollars is required to purchase 1 Canadian dollar in year 2. Thus, the dollar has lost its value by 5. The process of losing the value of the currency related to another is known as depreciation. So, the dollar has depreciated relative to Canadian dollar between year 1 and year 2.

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Subpart (e):

To determine

The equilibrium dollar price of Canadian dollar.

Subpart (e):

Expert Solution

Explanation of Solution

There are many reasons for the relative change in the price of currencies. They can be due to more rapid inflation in the US than in Canada, higher growth rate in the US than in Canada, or an increase in the real interest rate in the US over Canada.

Option (1):

The main reason for the change in the relative values of currencies in the international market is the rapid inflation in the US when compared to Canada. When there is inflation in the US, the prices of the US goods and services will increase and they will become costly in the international market. As a result, the Canada consumers will demand their domestic products due to higher prices of US products. This will reduce the demand for the US dollar. As a result, the dollar will depreciate its value which makes the relative change in the value of two currencies over the period. Thus, option (1) is correct.

Option (2):

When there is a higher interest rate in the US relative to that in Canada, the investors in Canada will shift their investment to the US in order to earn a higher interest income from their investment. This will increase the demand for the dollars and the supply of Canadian dollar, which will result in the appreciation of a dollar in the exchange market. Since the relative change in the situation is depreciation, this option cannot be true. Thus, option (2) is incorrect.

Option (3):

The faster growth of income in US over Canada’s can be a reason for the relative change in the exchange rate of the currencies. But, the higher growth of income will lead to faster growth of the US. This would result in a better rate of interest which will in turn lead to the appreciation of a dollar. Here, it is depreciation. Thus, option (3) is incorrect.

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Definition Video Definition Point where the demand and supply curves intersect. At the equilibrium price the quantity supplied of a good is equal to the quantity demanded. When the market is not in equilibrium, market surplus or market shortage occurs. The region that is above the price equilibrium indicates market surplus and the region below the price equilibrium indicates market shortage. Video

Chapter 21, Problem 3P

Subpart (a):

To determine

The equilibrium dollar price of Canadian dollar.

Subpart (a):

Expert Solution

Explanation of Solution

The exchange rate is the rate at which one currency is exchanged with another currency. The flexible exchange rate is the most prominent exchange rate system that prevails in the economy. According to the flexible exchange rate system, the exchange rate will be determined by equating the demand for and supply of currency in the exchange rate market. Thus, the exchange rate will keep fluctuating according to the fluctuations in the demand for and supply of money in the market.

The demand for money and supply of money are equated with each other in order to calculate the flexible exchange rate of the economy. From the table given about the first year demand and supply of Canadian dollar, the only price which equates the quantity demanded to the quantity supplied is at price 115. At this price point, the quantity demanded and the quantity supplied of Canadian dollar is equal to 20. Thus, the equilibrium dollar price of Canadian dollar in year 1 is 115.

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Subpart (b):

To determine

The equilibrium dollar price of Canadian dollar.

Subpart (b):

Expert Solution

Explanation of Solution

The year two Canadian dollar supply is given in the fourth column of the table and according to the values of the quantity demanded and the quantity supplied of the Canadian dollar in year 2, we can identify the dollar price which equates the quantity demanded and quantity supplied of the Canadian dollar in year 2 is at 120. At this price point, both the quantity demanded and the quantity supplied are equal to 15. Thus, the equilibrium dollar price of Canadian dollar in year 2 is 120.

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Subpart (c):

To determine

The equilibrium dollar price of Canadian dollar.

Subpart (c):

Expert Solution

Explanation of Solution

The dollar price of Canadian dollar in year 1 was 115 and in year 2 was 120. This shows that the dollar price of Canadian dollar increased from 115 to 120 in the period of one year. This shows us that in order to purchase 1 Canadian dollar, 115 dollars were required in year 1 and it increased to 120 dollars in Year 2. Thus, in one year, the dollar price of Canadian dollar increased by 5 dollars. The process of increasing the value of the domestic currency with regards to the foreign currency is known as appreciation. Thus, Canadian dollar has appreciated relative to the dollar between year 1 and 2.

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Subpart (d):

To determine

The equilibrium dollar price of Canadian dollar.

Subpart (d):

Expert Solution

Explanation of Solution

The dollar price of Canadian dollar increased from year 1 to year 2. This shows that 5 more dollars is required to purchase 1 Canadian dollar in year 2. Thus, the dollar has lost its value by 5. The process of losing the value of the currency related to another is known as depreciation. So, the dollar has depreciated relative to Canadian dollar between year 1 and year 2.

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Subpart (e):

To determine

The equilibrium dollar price of Canadian dollar.

Subpart (e):

Expert Solution

Explanation of Solution

There are many reasons for the relative change in the price of currencies. They can be due to more rapid inflation in the US than in Canada, higher growth rate in the US than in Canada, or an increase in the real interest rate in the US over Canada.

Option (1):

The main reason for the change in the relative values of currencies in the international market is the rapid inflation in the US when compared to Canada. When there is inflation in the US, the prices of the US goods and services will increase and they will become costly in the international market. As a result, the Canada consumers will demand their domestic products due to higher prices of US products. This will reduce the demand for the US dollar. As a result, the dollar will depreciate its value which makes the relative change in the value of two currencies over the period. Thus, option (1) is correct.

Option (2):

When there is a higher interest rate in the US relative to that in Canada, the investors in Canada will shift their investment to the US in order to earn a higher interest income from their investment. This will increase the demand for the dollars and the supply of Canadian dollar, which will result in the appreciation of a dollar in the exchange market. Since the relative change in the situation is depreciation, this option cannot be true. Thus, option (2) is incorrect.

Option (3):

The faster growth of income in US over Canada’s can be a reason for the relative change in the exchange rate of the currencies. But, the higher growth of income will lead to faster growth of the US. This would result in a better rate of interest which will in turn lead to the appreciation of a dollar. Here, it is depreciation. Thus, option (3) is incorrect.

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Definition Video Definition Point where the demand and supply curves intersect. At the equilibrium price the quantity supplied of a good is equal to the quantity demanded. When the market is not in equilibrium, market surplus or market shortage occurs. The region that is above the price equilibrium indicates market surplus and the region below the price equilibrium indicates market shortage. Video

Chapter 21, Problem 3P

Subpart (a):

To determine

The equilibrium dollar price of Canadian dollar.

Subpart (a):

Expert Solution

Explanation of Solution

The exchange rate is the rate at which one currency is exchanged with another currency. The flexible exchange rate is the most prominent exchange rate system that prevails in the economy. According to the flexible exchange rate system, the exchange rate will be determined by equating the demand for and supply of currency in the exchange rate market. Thus, the exchange rate will keep fluctuating according to the fluctuations in the demand for and supply of money in the market.

The demand for money and supply of money are equated with each other in order to calculate the flexible exchange rate of the economy. From the table given about the first year demand and supply of Canadian dollar, the only price which equates the quantity demanded to the quantity supplied is at price 115. At this price point, the quantity demanded and the quantity supplied of Canadian dollar is equal to 20. Thus, the equilibrium dollar price of Canadian dollar in year 1 is 115.

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Subpart (b):

To determine

The equilibrium dollar price of Canadian dollar.

Subpart (b):

Expert Solution

Explanation of Solution

The year two Canadian dollar supply is given in the fourth column of the table and according to the values of the quantity demanded and the quantity supplied of the Canadian dollar in year 2, we can identify the dollar price which equates the quantity demanded and quantity supplied of the Canadian dollar in year 2 is at 120. At this price point, both the quantity demanded and the quantity supplied are equal to 15. Thus, the equilibrium dollar price of Canadian dollar in year 2 is 120.

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Subpart (c):

To determine

The equilibrium dollar price of Canadian dollar.

Subpart (c):

Expert Solution

Explanation of Solution

The dollar price of Canadian dollar in year 1 was 115 and in year 2 was 120. This shows that the dollar price of Canadian dollar increased from 115 to 120 in the period of one year. This shows us that in order to purchase 1 Canadian dollar, 115 dollars were required in year 1 and it increased to 120 dollars in Year 2. Thus, in one year, the dollar price of Canadian dollar increased by 5 dollars. The process of increasing the value of the domestic currency with regards to the foreign currency is known as appreciation. Thus, Canadian dollar has appreciated relative to the dollar between year 1 and 2.

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Subpart (d):

To determine

The equilibrium dollar price of Canadian dollar.

Subpart (d):

Expert Solution

Explanation of Solution

The dollar price of Canadian dollar increased from year 1 to year 2. This shows that 5 more dollars is required to purchase 1 Canadian dollar in year 2. Thus, the dollar has lost its value by 5. The process of losing the value of the currency related to another is known as depreciation. So, the dollar has depreciated relative to Canadian dollar between year 1 and year 2.

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Subpart (e):

To determine

The equilibrium dollar price of Canadian dollar.

Subpart (e):

Expert Solution

Explanation of Solution

There are many reasons for the relative change in the price of currencies. They can be due to more rapid inflation in the US than in Canada, higher growth rate in the US than in Canada, or an increase in the real interest rate in the US over Canada.

Option (1):

The main reason for the change in the relative values of currencies in the international market is the rapid inflation in the US when compared to Canada. When there is inflation in the US, the prices of the US goods and services will increase and they will become costly in the international market. As a result, the Canada consumers will demand their domestic products due to higher prices of US products. This will reduce the demand for the US dollar. As a result, the dollar will depreciate its value which makes the relative change in the value of two currencies over the period. Thus, option (1) is correct.

Option (2):

When there is a higher interest rate in the US relative to that in Canada, the investors in Canada will shift their investment to the US in order to earn a higher interest income from their investment. This will increase the demand for the dollars and the supply of Canadian dollar, which will result in the appreciation of a dollar in the exchange market. Since the relative change in the situation is depreciation, this option cannot be true. Thus, option (2) is incorrect.

Option (3):

The faster growth of income in US over Canada’s can be a reason for the relative change in the exchange rate of the currencies. But, the higher growth of income will lead to faster growth of the US. This would result in a better rate of interest which will in turn lead to the appreciation of a dollar. Here, it is depreciation. Thus, option (3) is incorrect.

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 21, Problem 3P

Subpart (a):

To determine

The equilibrium dollar price of Canadian dollar.

Subpart (a):

Expert Solution

Explanation of Solution

The exchange rate is the rate at which one currency is exchanged with another currency. The flexible exchange rate is the most prominent exchange rate system that prevails in the economy. According to the flexible exchange rate system, the exchange rate will be determined by equating the demand for and supply of currency in the exchange rate market. Thus, the exchange rate will keep fluctuating according to the fluctuations in the demand for and supply of money in the market.

The demand for money and supply of money are equated with each other in order to calculate the flexible exchange rate of the economy. From the table given about the first year demand and supply of Canadian dollar, the only price which equates the quantity demanded to the quantity supplied is at price 115. At this price point, the quantity demanded and the quantity supplied of Canadian dollar is equal to 20. Thus, the equilibrium dollar price of Canadian dollar in year 1 is 115.

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Subpart (b):

To determine

The equilibrium dollar price of Canadian dollar.

Subpart (b):

Expert Solution

Explanation of Solution

The year two Canadian dollar supply is given in the fourth column of the table and according to the values of the quantity demanded and the quantity supplied of the Canadian dollar in year 2, we can identify the dollar price which equates the quantity demanded and quantity supplied of the Canadian dollar in year 2 is at 120. At this price point, both the quantity demanded and the quantity supplied are equal to 15. Thus, the equilibrium dollar price of Canadian dollar in year 2 is 120.

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Subpart (c):

To determine

The equilibrium dollar price of Canadian dollar.

Subpart (c):

Expert Solution

Explanation of Solution

The dollar price of Canadian dollar in year 1 was 115 and in year 2 was 120. This shows that the dollar price of Canadian dollar increased from 115 to 120 in the period of one year. This shows us that in order to purchase 1 Canadian dollar, 115 dollars were required in year 1 and it increased to 120 dollars in Year 2. Thus, in one year, the dollar price of Canadian dollar increased by 5 dollars. The process of increasing the value of the domestic currency with regards to the foreign currency is known as appreciation. Thus, Canadian dollar has appreciated relative to the dollar between year 1 and 2.

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Subpart (d):

To determine

The equilibrium dollar price of Canadian dollar.

Subpart (d):

Expert Solution

Explanation of Solution

The dollar price of Canadian dollar increased from year 1 to year 2. This shows that 5 more dollars is required to purchase 1 Canadian dollar in year 2. Thus, the dollar has lost its value by 5. The process of losing the value of the currency related to another is known as depreciation. So, the dollar has depreciated relative to Canadian dollar between year 1 and year 2.

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Subpart (e):

To determine

The equilibrium dollar price of Canadian dollar.

Subpart (e):

Expert Solution

Explanation of Solution

There are many reasons for the relative change in the price of currencies. They can be due to more rapid inflation in the US than in Canada, higher growth rate in the US than in Canada, or an increase in the real interest rate in the US over Canada.

Option (1):

The main reason for the change in the relative values of currencies in the international market is the rapid inflation in the US when compared to Canada. When there is inflation in the US, the prices of the US goods and services will increase and they will become costly in the international market. As a result, the Canada consumers will demand their domestic products due to higher prices of US products. This will reduce the demand for the US dollar. As a result, the dollar will depreciate its value which makes the relative change in the value of two currencies over the period. Thus, option (1) is correct.

Option (2):

When there is a higher interest rate in the US relative to that in Canada, the investors in Canada will shift their investment to the US in order to earn a higher interest income from their investment. This will increase the demand for the dollars and the supply of Canadian dollar, which will result in the appreciation of a dollar in the exchange market. Since the relative change in the situation is depreciation, this option cannot be true. Thus, option (2) is incorrect.

Option (3):

The faster growth of income in US over Canada’s can be a reason for the relative change in the exchange rate of the currencies. But, the higher growth of income will lead to faster growth of the US. This would result in a better rate of interest which will in turn lead to the appreciation of a dollar. Here, it is depreciation. Thus, option (3) is incorrect.

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Answer 6

Chapter 21, Problem 3P

Subpart (a):

To determine

The equilibrium dollar price of Canadian dollar.

Subpart (a):

Expert Solution

Explanation of Solution

The exchange rate is the rate at which one currency is exchanged with another currency. The flexible exchange rate is the most prominent exchange rate system that prevails in the economy. According to the flexible exchange rate system, the exchange rate will be determined by equating the demand for and supply of currency in the exchange rate market. Thus, the exchange rate will keep fluctuating according to the fluctuations in the demand for and supply of money in the market.

The demand for money and supply of money are equated with each other in order to calculate the flexible exchange rate of the economy. From the table given about the first year demand and supply of Canadian dollar, the only price which equates the quantity demanded to the quantity supplied is at price 115. At this price point, the quantity demanded and the quantity supplied of Canadian dollar is equal to 20. Thus, the equilibrium dollar price of Canadian dollar in year 1 is 115.

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Answer 7

Chapter 21, Problem 3P

Subpart (a):

To determine

The equilibrium dollar price of Canadian dollar.

Answer 8

Subpart (a):

Expert Solution

Explanation of Solution

The exchange rate is the rate at which one currency is exchanged with another currency. The flexible exchange rate is the most prominent exchange rate system that prevails in the economy. According to the flexible exchange rate system, the exchange rate will be determined by equating the demand for and supply of currency in the exchange rate market. Thus, the exchange rate will keep fluctuating according to the fluctuations in the demand for and supply of money in the market.

The demand for money and supply of money are equated with each other in order to calculate the flexible exchange rate of the economy. From the table given about the first year demand and supply of Canadian dollar, the only price which equates the quantity demanded to the quantity supplied is at price 115. At this price point, the quantity demanded and the quantity supplied of Canadian dollar is equal to 20. Thus, the equilibrium dollar price of Canadian dollar in year 1 is 115.

Answer 9

Subpart (a):

Expert Solution

Answer 10

Subpart (a):

Expert Solution

Answer 11

Expert Solution

Answer 12

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Answer 13

Subpart (b):

To determine

The equilibrium dollar price of Canadian dollar.

Subpart (b):

Expert Solution

Explanation of Solution

The year two Canadian dollar supply is given in the fourth column of the table and according to the values of the quantity demanded and the quantity supplied of the Canadian dollar in year 2, we can identify the dollar price which equates the quantity demanded and quantity supplied of the Canadian dollar in year 2 is at 120. At this price point, both the quantity demanded and the quantity supplied are equal to 15. Thus, the equilibrium dollar price of Canadian dollar in year 2 is 120.

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Answer 14

Subpart (b):

To determine

The equilibrium dollar price of Canadian dollar.

Answer 15

Subpart (b):

Expert Solution

Explanation of Solution

The year two Canadian dollar supply is given in the fourth column of the table and according to the values of the quantity demanded and the quantity supplied of the Canadian dollar in year 2, we can identify the dollar price which equates the quantity demanded and quantity supplied of the Canadian dollar in year 2 is at 120. At this price point, both the quantity demanded and the quantity supplied are equal to 15. Thus, the equilibrium dollar price of Canadian dollar in year 2 is 120.

Answer 16

Subpart (b):

Expert Solution

Answer 17

Subpart (b):

Expert Solution

Answer 18

Expert Solution

Answer 19

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Answer 20

Subpart (c):

To determine

The equilibrium dollar price of Canadian dollar.

Subpart (c):

Expert Solution

Explanation of Solution

The dollar price of Canadian dollar in year 1 was 115 and in year 2 was 120. This shows that the dollar price of Canadian dollar increased from 115 to 120 in the period of one year. This shows us that in order to purchase 1 Canadian dollar, 115 dollars were required in year 1 and it increased to 120 dollars in Year 2. Thus, in one year, the dollar price of Canadian dollar increased by 5 dollars. The process of increasing the value of the domestic currency with regards to the foreign currency is known as appreciation. Thus, Canadian dollar has appreciated relative to the dollar between year 1 and 2.

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Answer 21

Subpart (c):

To determine

The equilibrium dollar price of Canadian dollar.

Answer 22

Subpart (c):

Expert Solution

Explanation of Solution

The dollar price of Canadian dollar in year 1 was 115 and in year 2 was 120. This shows that the dollar price of Canadian dollar increased from 115 to 120 in the period of one year. This shows us that in order to purchase 1 Canadian dollar, 115 dollars were required in year 1 and it increased to 120 dollars in Year 2. Thus, in one year, the dollar price of Canadian dollar increased by 5 dollars. The process of increasing the value of the domestic currency with regards to the foreign currency is known as appreciation. Thus, Canadian dollar has appreciated relative to the dollar between year 1 and 2.

Answer 23

Subpart (c):

Expert Solution

Answer 24

Subpart (c):

Expert Solution

Answer 25

Expert Solution

Answer 26

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Answer 27

Subpart (d):

To determine

The equilibrium dollar price of Canadian dollar.

Subpart (d):

Expert Solution

Explanation of Solution

The dollar price of Canadian dollar increased from year 1 to year 2. This shows that 5 more dollars is required to purchase 1 Canadian dollar in year 2. Thus, the dollar has lost its value by 5. The process of losing the value of the currency related to another is known as depreciation. So, the dollar has depreciated relative to Canadian dollar between year 1 and year 2.

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Answer 28

Subpart (d):

To determine

The equilibrium dollar price of Canadian dollar.

Answer 29

Subpart (d):

Expert Solution

Explanation of Solution

The dollar price of Canadian dollar increased from year 1 to year 2. This shows that 5 more dollars is required to purchase 1 Canadian dollar in year 2. Thus, the dollar has lost its value by 5. The process of losing the value of the currency related to another is known as depreciation. So, the dollar has depreciated relative to Canadian dollar between year 1 and year 2.

Answer 30

Subpart (d):

Expert Solution

Answer 31

Subpart (d):

Expert Solution

Answer 32

Expert Solution

Answer 33

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Answer 34

Subpart (e):

To determine

The equilibrium dollar price of Canadian dollar.

Subpart (e):

Expert Solution

Explanation of Solution

There are many reasons for the relative change in the price of currencies. They can be due to more rapid inflation in the US than in Canada, higher growth rate in the US than in Canada, or an increase in the real interest rate in the US over Canada.

Option (1):

The main reason for the change in the relative values of currencies in the international market is the rapid inflation in the US when compared to Canada. When there is inflation in the US, the prices of the US goods and services will increase and they will become costly in the international market. As a result, the Canada consumers will demand their domestic products due to higher prices of US products. This will reduce the demand for the US dollar. As a result, the dollar will depreciate its value which makes the relative change in the value of two currencies over the period. Thus, option (1) is correct.

Option (2):

When there is a higher interest rate in the US relative to that in Canada, the investors in Canada will shift their investment to the US in order to earn a higher interest income from their investment. This will increase the demand for the dollars and the supply of Canadian dollar, which will result in the appreciation of a dollar in the exchange market. Since the relative change in the situation is depreciation, this option cannot be true. Thus, option (2) is incorrect.

Option (3):

The faster growth of income in US over Canada’s can be a reason for the relative change in the exchange rate of the currencies. But, the higher growth of income will lead to faster growth of the US. This would result in a better rate of interest which will in turn lead to the appreciation of a dollar. Here, it is depreciation. Thus, option (3) is incorrect.

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.

Answer 35

Subpart (e):

To determine

The equilibrium dollar price of Canadian dollar.

Answer 36

Subpart (e):

Expert Solution

Explanation of Solution

There are many reasons for the relative change in the price of currencies. They can be due to more rapid inflation in the US than in Canada, higher growth rate in the US than in Canada, or an increase in the real interest rate in the US over Canada.

Option (1):

The main reason for the change in the relative values of currencies in the international market is the rapid inflation in the US when compared to Canada. When there is inflation in the US, the prices of the US goods and services will increase and they will become costly in the international market. As a result, the Canada consumers will demand their domestic products due to higher prices of US products. This will reduce the demand for the US dollar. As a result, the dollar will depreciate its value which makes the relative change in the value of two currencies over the period. Thus, option (1) is correct.

Option (2):

When there is a higher interest rate in the US relative to that in Canada, the investors in Canada will shift their investment to the US in order to earn a higher interest income from their investment. This will increase the demand for the dollars and the supply of Canadian dollar, which will result in the appreciation of a dollar in the exchange market. Since the relative change in the situation is depreciation, this option cannot be true. Thus, option (2) is incorrect.

Option (3):

The faster growth of income in US over Canada’s can be a reason for the relative change in the exchange rate of the currencies. But, the higher growth of income will lead to faster growth of the US. This would result in a better rate of interest which will in turn lead to the appreciation of a dollar. Here, it is depreciation. Thus, option (3) is incorrect.

Answer 37

Subpart (e):

Expert Solution

Answer 38

Subpart (e):

Expert Solution

Answer 39

Expert Solution

Answer 40

Economics Concept Introduction

Concept introduction:

Exchange rate: It is the rate at which one currency is exchanged for another currency.

Flexible exchange rate: It is the rate of exchange which is determined by equating the demand for and supply of the currency in the market. Thus, the exchange rate will fluctuate according to the fluctuations in the demand for and supply of currency.

Appreciation: It is the process of increasing the value of a currency with respect to another currency.

Depreciation: It is the process of decreasing the value of a currency with respect to another currency.