How Will an Interest Rate Increase in Canada Affect Equilibrium

question 35

Multiple Choice

How will an interest rate increase in Canada affect equilibrium in the market for Canadian dollars against foreign currencies? (Assume the exchange rate is stated in terms of foreign currency per Canadian dollar.)

• A)The equilibrium exchange rate will increase, and the equilibrium quantity of dollars traded cannot be determined.
• B)The equilibrium exchange rate will decrease, and the equilibrium quantity of dollars traded cannot be determined.
• C)The equilibrium exchange rate cannot be determined, and the equilibrium quantity of dollars traded will increase.
• D)The equilibrium exchange rate will increase, and the equilibrium quantity of dollars traded will increase.
• E)The equilibrium exchange rate and the equilibrium quantity of dollars traded cannot be determined.

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Definitions:

Distribution Transformer

A transformer used in electrical power distribution to step down voltage levels from high to lower levels for consumer use.

Control Transformer

A transformer used to provide a stable voltage supply to control devices in electrical circuits, isolating them from the main power circuit.

Inrush Current

The amount of current that is drawn when an inductive device is first connected to the power line.

Magnetizing

Refers to the process of inducing magnetic properties in a material, usually by placing it within a magnetic field or by passing an electric current through it.