ECON 3580

Long Answered Questions

*Kindly need assistance with these questions. Please give long, detailed, and explained answers so I can learn in the process. Thank you. Much appreciated*

1) State whether the following statement is TRUE, FALSE OR

UNCERTAIN. Justify your answer.

Based on (economic fundamentals) purchasing power parity the Canadian dollar is

undervalued

2) State whether the following statement is TRUE, FALSE OR UNCERTAIN. Justify your

answer.

(a) (5 marks) Suppose the Canadian CPI is 150, the U.S. CPI is 110 and the current exchange is

$1.46 CAD per U.S. dollar. Given this information, what is your advice to a currency

trader and why?

(b) (5 marks) If the current U.S. interest rate is 10 percent and PPP is expected to hold,

what should be the Canadian interest rate to maintain interest parity?

Q3. (6 marks) State whether the following statement is TRUE, FALSE OR

UNCERTAIN. Justify your answer.

Based on (economic fundamentals) purchasing power parity the Canadian dollar is

undervalued.

Q4. (6 marks) Why is it important for China to be on fixed than flexible exchange rates.

Briefly explain.

Q5. (6 marks) State whether the following statement is TRUE, FALSE OR

UNCERTAIN. Justify your answer.

Suppose we have two large open economies in the world, Home and Foreign. If the

home country has a lower closed economy (autarky) real interest rate than the foreign

country, then the home country is a net borrower at a world real interest rate below its

autarky interest rate and there is no world equilibrium real interest rate.

Q6. (5 marks) (a) Which theory explains better the U.S. current account deficits? Explain

taking into consideration the three theories of the current account.

(b) (5 marks) What major changes are needed to slash (reduce) U.S. trade deficits?

Briefly explain.

Q7. (6 marks) State whether the following statement is TRUE, FALSE OR

UNCERTAIN. Justify your answer.

Canada should peg (fix) its currency to the U.S. dollar once it has much the same

inflation rate as the United States.