16. The Exchange Rate (Ch8&12)

Principles of Macroeconomics (with Xtra!)

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T he exchange rate refers to the value of the Canadian dollar against the currencies of other countries. Among other things, it helps determine how much we pay for imported goods and services and how much we receive for what we export. When the value of the Canadian dollar falls, imported goods become more expensive, and we tend to reduce the volume of our imports. At the same time, other countries will pay less for some of our products and that will tend to boost export sales. The exchange rate plays a particularly important role in our economy because, compared with other countries, imports and exports are a relatively large part of Canada’s economy. Most of our trade is with the United States, which is why the value of our dollar against the U.S. dollar is especially important. Factors affecting the exchange rate Canada has a floating exchange rate. That means there is no set value for our currency compared with any other currency. The exchange rate is affected by supply and demand for Canadian dollars in international
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