1a. Holding other things constant, a decrease in the inflation rate in the US co

Question

1a. Holding other things constant, a decrease in the inflation rate in the US compared to the Canadian economy will cause the demand for the Canadian dollar to _____________ and the supply to __________.

a. Increase; decrease

b. Increase, increase

c. Decrease; Increase

d. Decrease; Decrease

1b. An individual in the US wants to buy office equipment from England which costs 2,000 pounds. If the exchange rate is 1pound=$1.9, how much will the office equipment cost him in dollar terms?

a.$2,000

b.$2,800

c.$3,800

d.   $1052

Explanation / Answer

1a

Holding other things constant, a decrease in the inflation rate in the US compared to the Canadian economy will cause the demand for the Canadian dollar to increase and the supply to decrease. The demand for canadian dollar will go up as the value of canadian dollar is up in real terms(adjusted for inflation).

1b

1 pound = $1.9

So 2000 pounds = 2000*$1.9 = $3800

The equipment will cost $3800 for the individual. So the correct option is C.

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