Exam 11: Exchange Rates and the Balance of Payments

The following balance of payments data is for the economy of Augusta: a)What is the value of its balance of trade? b)What is the balance on its current account? c)What is the balance on its capital account? d)Is there an overall balance of payments surplus or deficit? How much?

The following table shows the price,in Canadian dollars,of utops,the currency used in the hypothetical economy of Utopia.Assume that a system of flexible exchange rates is in place. -Refer to the information above to answer this question.What is the equilibrium rate of exchange of the utop?

When will the supply of Canadian dollars on world markets increase?

Which of the following statements is true about the supply curve for the Canadian dollar?

This graph is for the Canadian economy. -All of the following,except one,could have caused the increase in aggregate demand from AD1 to AD2.Which is the exception?

Assume that France and Britain have flexible exchange rates.If incomes increase by more in Britain than in France,what could we expect?

When the Canadian dollar depreciates,the effective price of Canadian exports increases and,as a result,total exports are likely to fall.

If Canada and the United Kingdom are both on flexible exchange-rate systems,what would happen if the United Kingdom experiences rapid inflation,while prices remain steady in Canada?

List the five factors that explain the differences in the purchasing power parity.

If,in a system of fixed exchange rates,the value of the Canadian dollar,as measured in British pounds,is above the equilibrium level,which of the following would happen?

Table 11.6 contains hypothetical data for Canada's balance of payments accounts for a particular year.(Figures are in $ billions. ) -Refer to Table 11.6 to answer this question.What is Canada's balance of trade?

Suppose that the American economy goes into a severe recession.Under a flexible exchange rate system,what can we expect?

Assuming a flexible exchange-rate system,what would happen to the value of the Canadian dollar and the Mexican peso if Canadian interest rates increase while Mexican rates remain the same?

Which of the following would increase the supply of Canadian dollars on the international money market?

A major source of demand for the Canadian dollar in the international money markets is the desire by foreigners to buy Canadian exports.

Explain the purchasing power parity theory.

Assume that the demand for the Canadian dollar (C$)increases.Assume the increase in the dollar was due to currency speculation,What is the effect on: a)the value of the Canadian exchange rate? b)the level of aggregate demand? c)the level of real GDP? d)the price level?

What could have caused the increase in aggregate demand from AD1 to AD2?

Distinguish between portfolio investment and direct investment.

All of the following groups except one demand Canadian dollars.Which is the exception?