A. Look for the following prevailing economic conditions in Canada:

a. Inflation. What has been the inflation rate in Canada in the past two years? What is your expectation for the inflation rate over the next year?

b. Economic growth. What has been the economic growth rate in Canada? What is your expectation of Canada's future economic growth over the next year?

c. Monetary policy by the Bank of Canada. Do you expect the Bank of Canada to affect the existing supply of loanable funds over the next year?

d. Fiscal policy by the federal government. Do you expect the federal government to increase or cut its spending, increase or reduce taxes over the next year?

Given the information you find and your expectations on the economic conditions, access how the demand for and the supply of loanable funds would be affected, if at all, and predict the future direction of interest rates in Canada. Use diagrams to support your analysis.

B. Assume that you are the treasurer of a manufacturing company. Your company can obtain a one-year loan at a fixed rate of 8 percent or a floating-rate loan that is currently at 8 percent but for which the e interest rate would be revised every month in accordance with general interest rate movements. Which type of loan is more appropriate based on your analysis in question A?

C. Assume that US interest rates have abruptly risen just as you have completed your forecast of future Canadian interest rates. Consequently, US interest rates are now 2 percentage points above Canadian interest rates. How might this specific situation place pressure on Canadian interest rates? Considering this situation along with the other information you find in question A, would you change your forecast of the future direction of the Canadian interest rate?

Statistics Canada website: https://www150.statcan.gc.ca/n1/en/type/data?text=