1. The table below shows hypothetical demand and supply schedules for the Canadian dollar in terms...

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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) 5 35 35 5 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) 5 35 35 5 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.

Answer rating: 100% (QA)

a Based on the given information the equilibrium exchange rate for the Canadian dollar would be US10... View the full answer