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Oil is an international commodity; whose price Canada takes as given. Starting around mid-2013 crude oil prices fell fairly quickly, stabilizing in mid-2015. Around the same period of time, the Canadian dollar depreciated relative to the US dollar.
(1) Use the IS-LM-FX model to explain why a decline in oil prices might lead to a depreciation of the Canadian currency.
(2) As a Central Banker what would you do to counteract this impact? Using your answer from part (1), what should happen to interest rates after the decline in oil prices? Obtain historical data on the Bank of Canada's benchmark interest rate. Does the bank's action appear consistent with your own recommendation?
(3) Oil prices have currently plummeted due to a price war between Saudi Arabia and Russia. Obtain recent data on the CAD/US exchange rate and compare it to your IS-LM-FX predictions from part (1). Has it behaved in the way that you would expect? Why or why not? Of the models we have studied, is IS-LM-FX the right model to use to think about this question? Why or why not? If not, what is a better theory?
What would be the new equilibrium in this economy if Investment increased by $12.
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Discuss what a broadband connection is, how it differs from a dial-up connection, and review the types of broadband connections.
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Government cannot require natural monopolies to charge a price equal to marginal cost because…
A 4-year annuity of eight $8,200 semiannual payments will begin 9 years from now, with the first payment coming 9.5 years from now. a) If the discount rate is 14 percent compounded monthly, what is the value of this annuity five years from now? If th..
First suppose that there is no tax in the country Randland. A resident, Dagny, has an hourly wage of $50. How is it possible for Dagny to increase her hours worked after a tax? Graph the labor supply decision for Dagny on a daily income-leisure graph..
Peter, a single taxpayer, bought a house to use as a rental property on April 1, 2007, for $300,000. He moved into the house on June 1, 2013, and used it as his personal residence until August 1, 2014, when he sold it for $500,000. Recognized gain on..
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Which of the following statements are true about inflation?
1.What would be your justifications for recommending it or denouncing it?
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