8. (4 pts) Canada's Balance of Payments --- Identify each of the following transactions with a CA (for current account) or KA for capital account. Also must have the correct sign (from Canada's point of view) a. (PetroCanada) b. An American company (Chevron) sells its Canadian operations to a Canadian company A Canadian tourist visits Florida for a sunny vacation 8. (5 pts) Let the international market for Canadian dollars be: $Q_d = 80 - 20e$, $Q_s = 35 + 10e$ (e is US $ per Can $) a. What is equilibrium e? b. The central bank wants the e to be $0.8 (US$ per C$). Will the Bank of Canada be buying or selling foreign reserves? c. How many dollars-worth of foreign reserves will the Bank of Canada be buying or selling?
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The international market for Canadian dollars is represented by the demand and supply equations: Qd = 80 - 20e and Qs = 35 + 10e, where e is the exchange rate in US dollars per Canadian dollar. Show more…
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Part Two (60%): Long Questions Al. (20% The following diagrams show the determination of monetary equilibrium and the demand for investment_ The economy begins with money supply Ms, money demand Mo. and investment demand IP _ The interest rate is i0 and desired investment is Io. Quantity of Money Desired Investment Figure 1: Question A] Beginning at the initial equilibrium; suppose the Bank of Canada increases the money supply. What happens in the money market, and what happens to desired investment expenditure?
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Consider the model of supply and demand for central bank money. Assume that there are commercial banks. Suppose that people hold 20% of their money in currency and 80% of their money in deposits. The central bank sets the reserve-to-deposit ratio at 10%. In the first period, the central bank increases the supply of money by $200, buying bonds through Open-Market Operations. Use this information to answer the following questions: (a) (10 marks) For the second period (after the central bank has injected $200 in the economy), calculate: (i) the demand for currency, (ii) the amount of deposit held at the commercial banks, (iii) the demand for reserves held at the central bank, and (iv) the demand for the high-powered money. How much is the additional money supply created at the end of the second period? (b) (5 marks) How much is the additional money supply created at the end of the third period? (c) (5 marks) As time continues, additional money supply will be created. Calculate the total increase in the money supply as a consequence of the initial $200 increase in the money supply by the central bank.
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Assume the following: i. The public holds no currency. ii. The ratio of reserves to deposits is 0.1. iii. The demand for money is given by Md = $Y(0.82-3.2i) Initially, the monetary base is $83 billion, and nominal income is $4.7 trillion. a. Determine the demand equation for central bank money. b. Calculate the equilibrium interest rate by setting the demand for central bank money equal to the supply of central bank money. (Round your answer to two decimal places). c. Determine the overall supply of money. Calculate the equilibrium interest rate by setting the overall demand for money equal to the overall supply of money. (Round your answer to two decimal places).
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