Assume that Canada and Kenya are trading partners. a.lf the real interest rate in Canada decreases, what will happen to the financic accounts for both Canada and Kenya? b.Assume instead that Canada experiences significant inflation compared to Kenya. Draw the foreign exchange market for the

Principles of Economics (MindTap Course List)
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Chapter31: Open-Economy Macroeconomics: Basic Concepts
Section31.2: The Price For International transaction: Real And Nominal Exchange Rate
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Macro
Macroeconomics:Internat
ional Trade and Foreign
Exchange
Assume that Canada and Kenya are trading
partners.
a.If the real interest rate in Canada
decreases, what will happen to the financial
accounts for both Canada and Kenya?
b.Assume instead that Canada experiences
significant inflation compared to Kenya.
Draw the foreign exchange market for the
Canadian dollar and show what happens to
the demand for Canadian dollars. Be sure to
identify if the Canadian dollar will
appreciate or depreciate?
Transcribed Image Text:Macroeconomics:Internat ional Trade and Foreign Exchange Assume that Canada and Kenya are trading partners. a.If the real interest rate in Canada decreases, what will happen to the financial accounts for both Canada and Kenya? b.Assume instead that Canada experiences significant inflation compared to Kenya. Draw the foreign exchange market for the Canadian dollar and show what happens to the demand for Canadian dollars. Be sure to identify if the Canadian dollar will appreciate or depreciate?
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