Question

Ignore the random yellow line on the graph, that was just me showing you the different labels you should have for the lines you draw.

Use the information in Chapter 10 and the diagram to show the effect on the exchange rate of U.S. dollars per Canadian dollar when goods become relatively more expensive in Canada than in the United States 1.) Using the line drawing tool possibly twice, show the effect on the U.S. market for Canadian dollars. Properly any lines you draw. 2.) Using the point drawing tool, show the new market equilibrium. Label the point E' Carefully follow the instructions above, and only draw the required objects. 2 Ir Delete Clear? Q1 Quantity of Canadian Dollars Editing: Line tool

Answer 1

Demand for Canadian dollars would decrease (People from other countries would not buy expensive goods from Canada)

Supply of Canadian dollars would increase (people in Canada would sell Canadian $ to buy goods from foreign countries)

S1 R US $/Canadian $ S2 E (New market equilibrium) D1 D2 Quantity of Canadian $

Therefore, Canadian dollar depreciates with respect to US dollar.