As a result the real exchange rate in canada has

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Unformatted text preview: s a result, the real exchange rate in Canada has become increasingly correlated with the real price of energy (in particular oil). As the price of oil goes up, the Canadian dollar becomes more valuable and the price of Canadian goods become expensive relative to the price of US goods. Prof. Faig (Department of Economics UTM) Trade and Exchange Rate in Canada 2013/Mar 3/4 Energy Prices and the Real Exchange Rate in Canada 180 450 170 400 160 350 250 130 120 200 110 150 100 100 90 50 Price CA goods / Price US goods (left) Energy Relative Price (right) 2010 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 1978 1976 1974 80 Index 2002 = 100 300 140 1972 Index 2002 = 100 150 Determination of Net Exports in Canada Canadian net exports fall when Canadian goods become expensive relative to foreign goods. For example, as the price of oil goes up: Canadians increase their investment in the production of oil (I ") Also, Canadian consumption goes up (S #) Consequently, NX = S I falls. Prof. Faig (Department of Economics UTM) Trade and Exchange Rate in Canada 2013/Mar 4/4 Saving, Investment, and Net Exports in Canada 500.0 400.0 300.0 200.0 100.0 ‐100.0 ‐200.0 NX S I 2012 2010 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 1978 1976 1974 1972 0.0...
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