Answer to Question #315600 in Macroeconomics for anu

Question

Canada produces natural resources (coal, natural gas, and others), the demand for which has increased rapidly as China and other emerging economies expand.

1. Explain how growth in the demand for Canada’s natural resources would affect the demand for Canadian dollars in the foreign exchange market.
2. Explain how the supply of Canadian dollars would change.
3. Explain how the value of the Canadian dollar would change.
4. Illustrate your answer with a graphical analysis.

Answer 1

1.Demand for Canadian dollar will increase owing to the increase in the demand for natural resources, as the buyers would have to make payments in terms of the Canadian dollars. This will eventually lead to the revaluation of the Canadian dollar in the global market.

2.The supply for the Canadian dollar will increases owing to the increase in demand for the Canadian resources. Other countries will purchase more of Canadian resources using Canadian dollars as the means of exchange leading to increased circulation of the Canadian dollar in the global market.

3.The value of the Canadian dollar will automatically increase due to high demand of the Canadian resources in the global market.

4.The Canadian and oil prices.