Answer to Question #114613 in Macroeconomics for Ananna

Question

Use the following data to work Problems 1 to 3. The U.S. dollar exchange rate increased from $0.89 Canadian in June 2009 to $0.96 Canadian in June 2010, and it decreased from 83.8 euro cents in January 2009 to 76.9 euro cents in January 2010. Did the U.S. dollar appreciate or depreciate against the Canadian dollar? Did the U.S. dollar appreciate or depreciate against the euro? Explain

Answer 1

When the U.S. dollar exchange rate

increased from $0.89 = 1 Canadian in June 2009 to

$0.96 = 1 Canadian in June 2010,

The U.S. dollar appreciate against the Canadian dollar. it gains value against other currencies i.e dollars is getting stronger. when dollar appreciates (the exchange rate increases), the relative price of domestic goods and services increases while the relative price of foreign goods and services falls. The change in relative prices will decrease U.S. exports and increase its imports.

If $1 slides from 0.89 canadian to 0.96 canadian, then 0.96 canadian = $1.079.  this means you will have less buying power. The quantity to purchase at an appreciating exchange rate will be less.

when US dollar decreased from 83.8 euro cents in January 2009

76.9 euro cents in January 2010.

 the U.S. dollar depreciate against the euro; the dollar losing value relative to other currencies

If the dollar depreciates (the exchange rate falls), the relative price of domestic goods and services falls while the relative price of foreign goods and services increases. The change in relative prices will increase U.S. exports and decrease its imports.

If $1 slides from 0.8 euros to 0.75 euros, then 0.75 euro = $0.9375.  this means you will have more of buying power.