Question

Consider a global market for loanable funds where Canada is currently a net international lender. Illustrate and explain the consequences with respect to this market if the government launches a new major social spending program. What happens to the value of the Canadian dollar in response? Justify

Apply the AD-SAS-LAS model to explain the short and long-run consequences of an unexpected and lasting boom in demand for Canadian exports.

Explain, clearly, how central banks can fix their domestic exchange rate, and how the long-run consequences of fixing the exchange rate above the market equilibrium are different from those of fixing the long-run exchange rate below market equilibrium.

Calculate and interpret the real exchange rate if 1 USD is worth 0.70 CAD, American houses cost $200,000, and Canadian houses cost $290,000 (for comparable houses).

Answer 1