Answer to Question #99828 in Macroeconomics for Tiffany

Question

The Canadian one dollar coin is colloquially referred to as the "loonie." Explain in words and draw a graph of the exchange market between the U.S. dollar and the loonie to show how the exchange rate will change in response to the following events. Assume that the exchange rate is expressed in dollars per loonie.
C. The Fed dramatically increases the supply of dollars in the U.S. economy.

Answer 1

C. If the Fed dramatically increases the supply of dollars in the U.S. economy, then the dollar will fall in value and devaluate, the demand for loonie will increase, and the exchange rate will increase.