Asked by Conner Reiss on Apr 28, 2024
Verified
Initially trade between the United States and Canada is balanced. Then, if a change in the exchange rate reduces the U.S. dollar price of Canadian goods, ceteris paribus, we would expect
A) a trade surplus in the United States.
B) a trade surplus in Canada.
C) a trade deficit in Canada.
D) a trade deficit in both countries.
Exchange Rate
The value of a currency expressed in the amount of another currency that can be traded for it.
Trade Surplus
A situation where a country's exports exceed its imports, leading to a net inflow of domestic currency from foreign markets.
Trade Deficit
A situation where a country's imports exceed its exports during a specific time period.
- Investigate the significance of exchange rates in determining trade balance and their influence on either a trade surplus or deficit.
Verified Answer
DP
dharmesh patelMay 01, 2024
Final Answer :
B
Explanation :
When the U.S. dollar price of Canadian goods decreases, Canadian goods become cheaper for U.S. consumers, leading to an increase in U.S. imports from Canada. This results in a trade surplus for Canada, as it exports more to the U.S. than it imports from it, ceteris paribus.
Learning Objectives
- Investigate the significance of exchange rates in determining trade balance and their influence on either a trade surplus or deficit.