Q1

Globe and Mail Friday April 13, 2020

RBC predicts economy will fall into a recession later this year due to coronavirus impact.

a)Explain how Covid - 19 could create a "recessionary (deflationary) gap. Be sure to identify relevant components of AD that would be impacted.

b)Use an AS/AD model to illustrate your answer to part a)

Q2

Explain and use an exchange rate diagram for Canadian dollars to illustrate whether the following statement is true or false."Flexible exchange rates reduce the impact on Canadiannet exports(X-M) associated with falling US demand for Canadian commodities." Be specific and make direct reference to your diagram in your answer. Be sure to draw an exchange rate diagram consistent with those used in this class (Q Cdn$ on horizontal axis, value of Cdn$ in US dollars on the vertical axis and an upward sloping (non-vertical) supply.

Q3

a)State and explainif the following statement is true or false."Using bonds with coupon rates that are significantly higher than current market interest rates will distort the yield curve."

b)State and explainif the following statement is true or false. "At a given point in time, could the 10-year Government of Canada Bond have a higher price and a higher yield than the 5- year Government of Canada Bond?" Precisely explain and assume all Government of Canada bonds are riskless from a default perspective..