In 2015, a letter to a Canadian national newspaper argued that “the economy of this once wonderful country is in the sewer and the politicians keep on tinkering, not knowing how to fix it.” The letter proposed a 20 percent depreciation of the Canadian dollar and argued that the immediate effects would be (among other things)

• a dramatic rise in exports

• a dramatic fall in imports

• a large net inflow of new foreign investment

a. What could the Bank of Canada do to generate a 20 percent depreciation of the Canadian dollar?

b. Would the action necessary in part (a) be consistent with the Bank’s stated commitment to keeping inflation close to the 2 percent target? Explain.

c. However such a depreciation of the Canadian dollar might occur, is it possible to have the three effects claimed by the author of the letter? Explain.