\"WU Macroeconomics Unit 6 :9\"; Free Response Questions EBQ- Assume that Canada and Mexico are trading partners and that incomes in Mexico increase. The currency in Canada is the dollar and the currency in Mexico is the peso. (a) Answer each of the following based on the increase in incomes in Mexico. (i) What will happen to net exports in Canada? Explain. (ii) Will the current account balance in Mexico move toward a surplus or toward a decit? (iii) Will the value of the Mexican peso appreciate or depreciate? Explain. (b) Now assume that the ination rate in Canada increases relative to the ination rate in Mexico. Draw a correctly labeled graph of the foreign exchange market for the Canadian dollar and show the effect of the increase in inflation on the dollar price per Canadian dollar. (c) Now assume that the government of Canada places high tariffs on Mexican goods. Based on the tariffs, answer each of the following. (i) What will happen to the demand for pesos? Explain. (ii) What will happen to the value of the Canadian dollar? EBQ- Assume that the real interest rate in Country X increases. (a) What will happen to Country X's purchases of foreign assets? Explain. (b) Draw a correctly labeled graph of the foreign exchange market for Country X's currency. (i) Show the effect of the increase in real interest rates on the demand for Country X's currency. (ii) Identify if the international value of Country X's currency will increase or decrease. (c) Based solely on your answer to part (b)(ii), what will happen to net exports in Country X? Explain. (d) Now assume that Country X purchases factory equipment from Country Y. Will this transaction be recorded in Country X's current account (CA) or Capital and Financial Account (CFA)? Explain. Video Help: httpsrffyoutu.belE-5iHN24EKE Copyright Jacob Clifford 2022. Annual license reguired Do not use unless you have purchased a license