Q3. (15 points) Assume that you live in Canada and your income M is in Canadian dollars (CAD).Assume you only consume two goods: Good 1 and Good 2. Good 1 is produced in Canada and is the price of good 1 and is in Canadian dollars. Good 2 is produced in the US and is the price of good 2 and is in US dollars (USD).is the USD price of a CAD.

1)(2 points) Write down your budget constraint. Use and to indicate the consumption of good 1 and good 2.

2)(3 points) Suppose that goes down. Is it a depreciation or appreciation of the Canadian dollar?

3)(5 points) Suppose that , , and M all stay the same and only goes down. Draw the change of your budget constraint. Are you better off or worse off?

4)(5 points) Can we use your answer to part 3) to judge whether this particular change in the value of your local currency is good or bad? If yes, why? If no, why not?