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2009 FRQ FORM B

2009 FRQ FORM B. AP MACROECONOMICS. Question 3. Assume that the real interest rates in both Canada and India have been 5 percent. Now the real interest rate in India increases to 8 percent.

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2009 FRQ FORM B

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  1. 2009 FRQ FORM B AP MACROECONOMICS Question 3

  2. Assume that the real interest rates in both Canada and India have been 5 percent. Now the real interest rate in India increases to 8 percent.

  3. (a) Using a correctly labeled graph of the foreign exchange market for the Canadian dollar, show the effect of the higher real interest rate in India on each of the following. • (i) Supply of the Canadian dollar. Explain. • (ii) The value of the Canadian dollar, assuming flexible exchange rates

  4. Answer • Canadian investors will be attracted by the higher real interest rate in India and will increase their purchase of Indian financial assets.

  5. (b) Using a correctly labeled graph of the loanable funds market in Canada, show how the increase in the real interest rate in India affects the real interest rate in Canada.

  6. Answer

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