Question

5. Balance of payments and the foreign exchange market The following graph shows the market for euros, which is initially in equilibrium. Suppose an economic expansion in Canada leads to an increase in the incomes of Canadian households, causing imports from Europe to rise. On the graph, illustrate the effect of an economic expansion on the market for euros by shifting the appropriate curve or curves. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. Supply Demand Supply EXCHANGE RATE (Dollars per euro) Flexible exchange rates ON Fixed exchange rates

Answer 1

- under a system of flexible exchange rate, the dollar will appreciate until the foreign exchange market reaches an equilibrium ? exchange date of $i per euro. under a system of fixed exchange sates, 7 the policies that canadian gout could use to prevent the change in demand in for euros from driving the exchanges sute to the new equilibrium are: Reduce income taxes in canda Canada, e place irupert restrictions on european