3. Refer to the following table, in which Qd is the quantity of loonies demanded, P is the dollar price of loonies, Qs is the quantity of loonies supplied in year 1, and Qs′ is the quantity of loonies supplied in year 2. All quantities are in billions and the dollar-loonie exchange rate is fully flexible. LO27.3 Qd P Qs Qs′

10 15 20 25 125 120 115 110 30 25 20 15 20 15 10 5

a. What is the equilibrium dollar price of loonies in year 1?

b. What is the equilibrium dollar price of loonies in year 2?

c. Did the loonie appreciate or did it depreciate relative to the dollar between years 1 and 2?

d. Did the dollar appreciate or did it depreciate relative to the loonie between years 1 and 2?

e. Which one of the following could have caused the change in relative values of the dollar (used in the United States) and the loonie (used in Canadia) between years 1 and 2: (1) More rapid inflation in the United States than in Canadia, (2) an increase in the real interest rate in the United States but not in Canadia, or (3) faster income growth in the United States than in Canadia?