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Standard consumption bundle currently sells for $25,000 in the U.S. and CAD30,000 in Canada. The current exchange rate is CAD1.1/USD. Annual inflation rate is expected
Standard consumption bundle currently sells for $25,000 in the U.S. and CAD30,000 in Canada. The current exchange rate is CAD1.1/USD. Annual inflation rate is expected to be 3% in the U.S. and 5% in Canada. If USD appreciates 2.5% against CAD in the next year, discuss the followings with calculations. (a) The impact on USD's purchasing power of U.S. goods in the next year. (b) The impact on USD's purchasing power of Canadian goods in the next year. (c) The impact on the trade between U.S. and Canada. (d) Which country will become more competitive in the world market
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