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Suppose Canada has a merchandise trade deficit and
Mexico has a merchandise trade surplus.The two coun-
tries have a flexible exchange rate system,so the Mexi-
can peso appreciates and the Canadian dollar depreci-
ates.It is noticed,however,that soon after the
depreciation of the Canadian dollar,CanadaÕs trade
deficit grows instead of shrinks.Why might this occur?
Idk the answerrr. i need help!:confused::confused::confused:
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Initially this doesn't seem to make sense, but try googling
purchasing-power parity
that might explain it.
xostaybeautiful;93091 wrote:Suppose Canada has a merchandise trade deficit and
Mexico has a merchandise trade surplus.The two coun-
tries have a flexible exchange rate system,so the Mexi-
can peso appreciates and the Canadian dollar depreci-
ates.It is noticed,however,that soon after the
depreciation of the Canadian dollar,CanadaÕs trade
deficit grows instead of shrinks.Why might this occur?
Idk the answerrr. i need help!:confused::confused::confused:
This is really a horrible question, the possibility's are endless.
I'll give you one acceptable answer I believe the book is looking for :D
When a form of currency(Gold, Iron, Animals, Fish,Top Ramon Noodles*prison currency*, Credit, or what ever is used(dosn't have to be a "dollar" or "peso" per say) ) loses demand in a flexible exchange rate system that means the value will drop.(In terms of traders wanting it or not)
^ That being said Mexico's currency has increased in demand therefore increasing the value of the Peso, Meaning the Canadian Dollar is going to be worth less then before.(in terms of Peso vs
Canada's currency is now worth less(not worthless but just not as much as before) but they are purchasing same quantity of shit(in assumption based on my impulses(that's why this question is stupid and very abstract)).
That is why the deficit would grow.
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exico has a merchandise trade surplus.The two coun-
tries have a flexible exchange rate system,so the Mexi-
can peso appreciates and the Canadian dollar depreci-
ates.It is noticed,however,that soon after the
depreciation of the Canadian dollar,CanadaÕs trade
deficit grows instead of shrinks.Why might this occur?
____________________________________________________________
That is the answer to the question, in shorter terms. You could also say they started a war with another country, the government got overthrown etc all of which would be an acceptable answer!
also why could two country's count as microeconomics