• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Both the Canadian and the American economies have been highly affected by the change in the prices of their currencies. Discuss.

Extracts from this document...

Introduction

Both the Canadian and the American economies have been highly affected by the change in the prices of their currencies. The Canadian dollar, the "loonie", reached a high rate it had not reached in over 30 years. This is not as positive as it sounds; it happened too quickly and worries about manufacturing jobs are increasing, there has been a demand to the Bank of Canada (BOC) to cut the interest rates. Concerning this issue the article "Pressure builds to cut rates" was published. As the central bank of the country, BOC can practice the Monetary Policy where if there is a cut in the interest rate, there will be a rise in aggregate demand (AD) which is the sum of all expenditure of an economy over a period of time. ...read more.

Middle

However, BOC apparently has only one concern, which is an increase in the inflation; a cause of cutting interest rates as the AD increases. This can be illustrated in the following figure. As can be seen in the graph, the increase in the AD caused by the cuts in the interest rate will increase the price and thus cause inflation which is the reason BOC does not want to cut the rates. Also, as mentioned in the article, the whole rise in the value went too far and too fast meaning things are not totally under control so the BOC is trying to keep its commitment in keeping "price inflation well under control" as Canada is already under some inflationary pressure at the moment. ...read more.

Conclusion

to increase the chance of exports getting sold in the U.S. this can be seen from a point of view where if the lending rates decrease, the qualified banks will be able to borrow more from the central bank and the borrowing and lending will be now between these banks where a borrower will gain from the lender and can use the money gained to be lent to the manufacturing industries so producing will not cost them as much and they can lower their prices making it easier for the products to be exported and sold outside the country. The relationship between a lower interest rate and loans can be seen in the figure below. The rise in the loonie had definitely caused trouble to manufacturers who, at the end, were promised, by the government, a tax break on equipment and machinery in two years leaving the struggle of BOC unresolved. ?? ?? ?? ?? 1 ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our International Baccalaureate Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related International Baccalaureate Economics essays

  1. Economics Extended Essay - To what extent has the market for paintings in South ...

    "The art market is showing signs of recovery, which was only expected. There are already clear indications of this happening. Recent auctions point to a sense of revival in the art market. A series of auctions held in the last few months indicate a perceptible positive change in the scenario.

  2. World Economics assignment. The core economic issues that are focused on in this ...

    According to the student guide, "Tariffs are taxes or customs duties placed on foreign products to artificially raise their prices and this hopefully, suppresses domestic demand for them.(9)" According to wikipedia, "Non-tariff barriers to trade (NTBs) are trade barriers that restrict imports but are not in the usual form of a tariff.(10)"

  1. Outline briefly- with a diagram, the key economies and diseconomies of scale, both internal ...

    In other words, they are the monetary benefits that arise within the firm itself regardless of the overall growth of the industry. As the firm produces more and more goods, the average costs begin to fall because of: 1) Technical economies: larger firms take better advantage of their fixed capital:

  2. What is the impact of the Notional Interest Tax Deduction system on investments in ...

    of tax inspectors to make sure that they receive the money that they are accountable to. As we have established above, tax revenue for the government will be reduced. This means that the government will have to make more choices and face more opportunity costs since they will not have enough funds to finance large projects.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work