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 27, 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

1. After the reopening of borders with mainland China following the COVID-19 lockdown, residents living near the border now have the option to shop for food on either side. In Hong Kong, the cost of food is at its listed price, while across the border in mainland China, the price is only half that of Hong Kong's. A recent report indicates a decline in food sales in Hong Kong post-reopening. ** Diagrams need not be to scale; Focus on accurately representing the relevant concepts and relationships rather than the exact proportions. (a) Using a diagram, explain why Hong Kong's food sales might have dropped after the border reopening. Assume that consumers are indifferent between purchasing food in Hong Kong or mainland China, and therefore, their indifference curves have a slope of one like below. Additionally, consider that there are no transport costs and the daily food budget for consumers is identical whether they shop in Hong Kong or mainland China. I 3. 14 (b) In response to the…

2. Health Food Company is a well-known global brand that specializes in healthy and organic food products. One of their main products is organic chicken, which they source from small farmers in the area. Health Food Company is the sole buyer of organic chicken in the market. (a) In the context of the organic chicken industry, what type of market structure is Health Food Company operating in? (b) Using a diagram, explain how the identified market structure affects the input pricing and output decisions of Health Food Company. Specifically, include the relevant curves and any key points such as the profit-maximizing price and quantity. () (c) How can encouraging small chicken farmers to form bargaining associations help improve their trade terms? Explain how this works by drawing on the graph in answer (b) to illustrate your answer.

2. Suppose that a farmer has two ways to produce his crop. He can use a low-polluting technology with the marginal cost curve MCL or a high polluting technology with the marginal cost curve MCH. If the farmer uses the high-polluting technology, for each unit of quantity produced, one unit of pollution is also produced. Pollution causes pollution damages that are valued at $E per unit. The good produced can be sold in the market for $P per unit. P 1 MCH 0 Q₁ MCL Q2 E a. b. C. If there are no restrictions on the firm's choices, which technology will the farmer use and what quantity will he produce? Explain, referring to the area identified in the figure Given your response in part a, is it socially efficient for there to be no restriction on production? Explain, referring to the area identified in the figure If the government restricts production to Q1, what technology would the farmer choose? Would a socially efficient outcome be achieved? Explain, referring to the area identified in…

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 27, 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 27, 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 27, 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 27, 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 27, 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 27, 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.