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:

Gamete

A fully developed haploid reproductive cell from either a male or female that can merge with one of the opposite sex during sexual reproduction, leading to the creation of a zygote.

Multifactorial

Pertaining to or arising from the interaction of multiple factors, including genetic and environmental influences.

Polygenic

A term describing traits or conditions caused by multiple genes, often resulting in a wide range of potential outcomes or phenotypes.

Nonadditive

Relating to or characterized by a process or effect that does not simply combine individual components in a straightforward, additive manner.