40. Suppose purchasing power parity (PPP) depends only on hamburgers. The exchange rate is C$1.00 = US$0.70 and hamburger prices are C$2.00 in Canada and US$1.50 in the U.S.PPPsuggests that the

A) supply of Canadian dollars will increase.

B) Canadian dollar is overvalued.

C) demand for Canadian dollars will decrease.

D) Canadian dollar is undervalued.

E) supply of U.S. dollars will increase.

41. If the rate of return is 3 percent in Mexico and 1 percent in Canada, the

A) law of one price predicts a single international rate of return between 3 percent and 1 percent.

B) Mexican peso is expected to depreciate against the Canadian dollar by 2 percent.

C) Mexican peso is expected to appreciate against the Canadian dollar by 2 percent.

D) rate of return in Mexico is expected to fall to 1 percent.

E) rate of return in Canada is expected to rise to 3 percent.

42. Which activity is a positive entry on the Canadian financial account?

A) A Canadian tourist spends $2,000 at the SXSW Festival in Austin, Texas.

B) A U.S. tourist spends $3,000 at the Toronto International Film Festival.

C) A Canadian buys a German government bond.

D) A Canadian from Halifax invests in a hockey stick factory in Saskatchewan.

E) A French investor buys a winery in the Okanagan Valley in British Columbia.

43. When the economy is speeding too fast, all of the following happenexcept

A) inflation is above target inflation.

B) real GDP is above potential GDP.

C) unemployment is increasing.

D) there is an inflationary gap.

E) nominal GDP is above real GDP.

44. When the Bank of Canada buys bonds, interest rates

A) fall, business investment increases, and the Canadian dollar appreciates.

B) rise, business investment decreases, and the Canadian dollar appreciates.

C) rise, business investment decreases, and the Canadian dollar depreciates.

D) fall, business investment increases, and the Canadian dollar depreciates.

E) fall, business investment decreases, and the Canadian dollar appreciates.