Lec12 iC Questions Flashcards
An increase in the nominal interest rate will cause existing bonds to:
a) Decrease in present value and price
b) Not have a change in present value
c) Increase in present value and price
d) None of the above
a) Decrease in present value and price
If average corporate stock prices (such as represented by the TSX) rise, what is likely to happen to GDP in Canada?
a) GDP rises because consumption increases
b) GDP rises because investment increases
c) GDP rises because government spending increases
d) GDP rises because exports rise
e) All of the above are possible
e) All of the above are possible
A company is looking to import a product from China that is priced at 150 yuan. If the Yuan is valued at 5.10 per Canadian dollar, what is the equivalent price in Canadian dollars?
(Answer to 2 decimal points)
150 Yuan X 1 Cdn / 5.10 Yuan
= $29.41 Cdn
All else equal, a depreciation of the Canadian dollar will make the purchase of imported products by Canadians:
a) Less expensive
b) More expensive
c) It will not change the price in Canadian dollars
b) More expensive
If the Canadian economy booms and people earn higher incomes, they import more foreign products. What effect would this have on the Canadian currency?
a) Canadian dollar depreciates
b) Exchange rate does not change
c) Canadian dollar appreciates
a) Canadian dollar depreciates
“As a result, there is higher demand for foreign currency and lower demand for the Canadian dollar, leading to its depreciation in the foreign exchange market.”
If Canada suddenly (and surprisingly) reduced interest rates, (all else equal), this would primarily cause:
a) Shifts in trade, and an appreciation of the Cdn Dollar
b) Shifts in financial flows, and an appreciation of the Cdn Dollar
c) Shifts in trade, and a depreciation of the Cdn Dollar
d) Shifts in financial flows, and a depreciation of the Cdn Dollar
e) None of the above
d) Shifts in financial flows, and a depreciation of the Cdn Dollar
“When Canada reduces interest rates, it becomes less attractive for foreign investors to hold Canadian assets because they now offer lower returns. This leads to capital outflows as investors move their money to other countries with higher interest rates. Since investors sell off Canadian dollars to buy foreign currencies, this reduces demand for the Canadian dollar and increases supply, leading to its depreciation in the foreign exchange market.”
A key policy message of the Donald Trump presidency is that the current account deficit was too large. One policy response is to raise trade barriers with countries all over the world, increasing the price of imported goods. On its own, this would lead to:
a) Depreciation of the USD, a larger current account deficit
b) Depreciation of the USD, a smaller current account deficit
c) Appreciation of the USD, a larger current account deficit
d) Appreciation of the USD, a smaller current account deficit
e) None of the above
d) Appreciation of the USD, a smaller current account deficit
“When trade barriers are raised (such as tariffs on imports), the price of imported goods increases, which leads to a reduction in imports. This helps to reduce the current account deficit, as fewer foreign goods are being purchased.”
A key policy message of the Donald Trump presidency is that the current account deficit is too large. The US government reduced tax rates (which leads to increased consumption) and increased government spending. On its own, this would lead to:
a) A decrease in the current account deficit
b) No change in the current account deficit
c) An increase in the current account deficit
d) None of the above
c) An increase in the current account deficit
“Reduced tax rates lead to higher disposable income, which increases consumer spending, including on imported goods. Higher imports without a corresponding increase in exports worsen the trade balance, leading to a larger current account deficit.”
