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macroeconomics help please?


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Old 07-19-2009, 01:14 PM
Amenda Amenda is offline
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Default macroeconomics help please?

Explanations about how monetary policy affects Canada's aggregate demand are incomplete if we do not consider the effects of perfect capital mobility and the effects of net exports. These two effects are crucial for a small open economy like Canada.Suppose the world interest rate is 4%, and Canada's interest rate is initially equal to 4%.7.1. If the Bank of Canada decreases the money supply, then we expect the world interest rate to ____.A. Remain unchangedB. IncreaseC. Decrease7.2. If the Bank of Canada decreases the money supply, then we expect the Canadian dollar to ____ against the U.S. dollar. Assume that the U.S. Federal Reserve does not change its interest rates, and remember that Canada has a flexible exchange rate.A. Stay the sameB. DepreciateC. Appreciate
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Old 07-19-2009, 01:43 PM
Joel Joel is offline
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Default macroeconomics help please?

1. A2. CIn theory, Canada shouldn't have enough power over the world money supply to have any affect to it.If Canada decreases the money supply, the money that is still out in circulation is going to be more valuable all of a sudden (AKA deflation), when compared to a system (in this case the US) that has not changed at all.
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