Suppose the Canadian and U.S. economies, on a flexible exchange rate, have real growth rates of 2% and a risk premium of 1% (Canada is riskier). The Canadian money growth rate is 10%, the U.S. money growth rate is 7% and the U.S. real interest rate is 3% 1)The Canadian nominal interest rate is: a) 10% or less b) 11% c) 12% d) more than 12% 2)The value of the Canadian dollar is falling each year by: a) less than 2% b) 2% c) 3% d) more than 3% please explain how you got the answer. the answer for both the parts is c)

answer

watching

107

views

For unlimited access to Homework Help, a Homework+ subscription is required.

You have 0 free answers left.
Get unlimited access to 3.8 million step-by-step answers.

Get unlimited access

Already have an account? Log in

Deanna HettingerLv2

27 Mar 2019

Unlock all answers

Get 1 free homework help answer.

Already have an account? Log in

Related questions

This morning, the price of an Ikea Stockholm armchair was CAD 600 on Ikea.com/ca (Canadian website), USD 500 on Ikea.com/us (US website), and EUR 350 on Ikea.com/it (Italian website). At the same time, the nominal exchange rates between these currencies were: 1.28 CAD / 1 USD and 0.67 EUR / 1 CAD. Consider again the information for Canada and the U.S. Given the price of an Ikea Stockholm armchair in Canada and the U.S., and the nominal exchange rate 1.28 CAD / 1 USD, which of the following statements about the real exchange rate between the Canadian armchair and the U.S. armchair is correct?

(a) 1.28 Canadian Ikea Stockholm armchairs can be exchanged for 1 U.S. armchair.

(b) 1.25 Canadian Ikea Stockholm armchairs can be exchanged for 1 U.S. armchair.

(d) 1 Canadian Ikea Stockholm armchair can be exchanged for 0.9375 U.S. armchairs.

turquoiseclam750

Suppose Canada and the U.S., on a fixed exchange rate, have real growth rates of 2%, and a risk premium of 1% (Canada is riskier). Canada's real interest rate is 4% and the U.S. nominal interest rate is 8%. what are Canada's inflation and nominal interest rate? please show your calculations. the answer for inflation is 5% and the nominal interest rate is 9%

redsnake37

2) Which of the following situations illustrates how fiscal policy can influence aggregate demand? A) The Bank of Canada raises interest rates so people plan to buy less consumer durables. As a result, aggregate demand decreases. B) The government increases its expenditures. The demand for loanable funds increases, which raises the real interest rate. Investment increases. The government reduces the goods and services tax. As a result, consumption expenditure increases and aggregate demand increases. D) Investors, anticipating an erosion of financial wealth due to inflation, decide to save more. As a result, aggregate demand decreases. E) The exchange rate value of the Canadian dollar rises. As a result, people living near the U.S.-Canada border increase their imports of goods and net exports decrease.