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Subject: Economics    / General Economics
Assignment #3- ECON 1200 (10% of final grade) For each of the following situations, outline the effect on the price of the Canadian dollar in terms of US dollars and draw a
demand and supply graph that illustrates the changes that occur in the foreign exchange market for the Canadian dollar.
(2 marks each)
a. A contractionary monetary policy initiated by the Bank Of Canada raises Canadian interest rates.

b. Canada’s real output rises at a time when real output in the United States is falling.

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c. Americans (but not Canadians) find Canada a more attractive place to make financial investments.

d. Given Canada’s aging population, more Canadian “snowbirds” travel to the United States each winter.

e. Due to a credit crisis that affects US financial institutions more than it does Canadian ones, Canada’s
attractiveness as a destination for direct and portfolio investment increases.

f. g. The Bank of Canada initiates an expansionary monetary policy that reduces Canadian interest rates. Canada is viewed as a less attractive place to make financial investments by Americans but not by Canadians. Canada’s real output falls at the same time as real output in the United States is staying constant Calculate the following: (1 mark each)

a. the US dollar price of an item priced at $520 in Canadian currency when the exchange rate is CDN$1 = US$0.91

b. the Canadian dollar price of an item priced at $24 000 in US currency if the exchange rate is US$1 = CDN$1.03

c. the US dollar price of an item priced at $3 in Canadian currency when the exchange rate is US$1 = CDN$1.06

d. the Canadian dollar price of an item priced at $82 in US currency when the exchange rate is CDN $1 = US$0.97

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