Note:-Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism.Answer completely.You will get up vote for sure. 14.3 PRACTICE PROBLEM1. The table below shows hypothetical demand and supply schedules for theCanadian dollar in terms of the US dollar. Assume the US dollar is the onlyforeign currency traded with the Canadian dollar and that the Canadiandollar sets a target exchange rate of US$0.90 when the equilibrium valueof the Canadian dollar would otherwise be US$1.00.Canadian Dollar Demand and Supply SchedulesQuantity of Cdn. Dollars Demanded(D)($ billions per year)535Price of Cdn.Dollar (in $US)1.150.85Quantity of Cdn. Dollars Supplied(S)($ billions per year)355a. Will the Bank of Canada need to buy or sell Canadian dollars? buy orsell US dollars? Will doing so create a balance-of-payments deficit or abalance-of-payments surplus?b. As a result of this intervention, will the "changes in official reserves" inCanada's balance-of-payments accounts be positive or negative?c. Draw a graph showing the effects on the foreign exchange market ofthe target exchange rate. Plot the endpoints of the demand and supplycurves and in your graph highlight the resulting balance-of-paymentsdeficit or surplus.

An exchange rate is the rate at which one currency can be exchanged for another currency. It…

1. The table below shows hypothetical demand and supply schedules for the Canadian dollar in terms of the US dollar. Assume the US dollar is the only foreign currency traded with the Canadian dollar and that the Canadian dollar sets a target exchange rate of US$0.90 when the equilibrium value of the Canadian dollar would otherwise be US$1.00. Canadian Dollar Demand and Supply Schedules Price of Cdn. Dollar (in $US) 1.15 0.85 Quantity of Cdn. Dollars Demanded Quantity of Cdn. Dollars Supplied (D) (S) ($ billions per year) ($ billions per year) 35 5 5 35 a. Will the Bank of Canada need to buy or sell Canadian dollars? buy or sell US dollars? Will doing so create a balance-of-payments deficit or a balance-of-payments surplus? b. As a result of this intervention, will the "changes in official reserves" in Canada's balance-of-payments accounts be positive or negative? c. Draw a graph showing the effects on the foreign exchange market of the target exchange rate. Plot the endpoints of the demand and supply curves and in your graph highlight the resulting balance-of-payments deficit or surplus.

1. The table below shows hypothetical demand and supply schedules for the Canadian dollar in terms of the US dollar. Assume the US dollar is the only foreign currency traded with the Canadian dollar and that the Canadian dollar sets a target exchange rate of US$0.90 when the equilibrium value of the Canadian dollar would otherwise be US$1.00. Canadian Dollar Demand and Supply Schedules Price of Cdn. Dollar (in $US) 1.15 0.85 Quantity of Cdn. Dollars Demanded Quantity of Cdn. Dollars Supplied (D) (S) ($ billions per year) ($ billions per year) 35 5 5 35 a. Will the Bank of Canada need to buy or sell Canadian dollars? buy or sell US dollars? Will doing so create a balance-of-payments deficit or a balance-of-payments surplus? b. As a result of this intervention, will the "changes in official reserves" in Canada's balance-of-payments accounts be positive or negative? c. Draw a graph showing the effects on the foreign exchange market of the target exchange rate. Plot the endpoints of the demand and supply curves and in your graph highlight the resulting balance-of-payments deficit or surplus.

Principles of Economics, 7th Edition (MindTap Course List)

7th Edition

ISBN:9781285165875

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter31: Open-Economy Macroeconomics: Basic Concepts

Section: Chapter Questions

Problem 8PA

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