Figure 14.3 Alt text for Figure 14.3: In figure 14.3, a graph illustrates the quantity of dollars traded against the exchange rate.
Long description for Figure 14.3: The x-axis is labelled, quantity of dollars traded in millions per day, and the y-axis is labelled, exchange rate, Japanese yen against Canadian dollars, with the values 150 and 160 yen marked.2 straight line supply curves slope up from the bottom left corner to the top right corner.Supply curve D is a straight line which slopes down from the top left corner to the bottom right corner.Supply curves, S1 and S2, intersect curve D.The intersection point of S1 and D is connected to its corresponding y-axis value of 150 with a dotted line.The intersection point of S2 and D is connected to its corresponding y-axis value of 160 with a dotted line.An up pointing arrow indicates the difference between the 2 y-axis values.A left pointing arrow indicates the change from curve S1 to curve S2.
-Refer to Figure 14.3.Consider the market for Canadian dollars against the Japanese yen shown above.An event that could have caused the changes shown in the graph would be
A)an increase in Canadian real income.
B)speculators expecting the dollar to depreciate in value in the near future.
C)an economic expansion in Canada.
D)a decrease in Japanese interest rates.
E)the imposition of a tax on foreign investment in Canada.

Question

Figure 14.3  Alt text for Figure 14.3: In figure 14.3, a graph illustrates the quantity of dollars traded against the exchange rate.
Long description for Figure 14.3: The x-axis is labelled, quantity of dollars traded in millions per day, and the y-axis is labelled, exchange rate, Japanese yen against Canadian dollars, with the values 150 and 160 yen marked.2 straight line supply curves slope up from the bottom left corner to the top right corner.Supply curve D is a straight line which slopes down from the top left corner to the bottom right corner.Supply curves, S1 and S2, intersect curve D.The intersection point of S1 and D is connected to its corresponding y-axis value of 150 with a dotted line.The intersection point of S2 and D is connected to its corresponding y-axis value of 160 with a dotted line.An up pointing arrow indicates the difference between the 2 y-axis values.A left pointing arrow indicates the change from curve S1 to curve S2.
-Refer to Figure 14.3.Consider the market for Canadian dollars against the Japanese yen shown above.An event that could have caused the changes shown in the graph would be
A)an increase in Canadian real income. 
B)speculators expecting the dollar to depreciate in value in the near future. 
C)an economic expansion in Canada. 
D)a decrease in Japanese interest rates. 
E)the imposition of a tax on foreign investment in Canada.

Quizplus · Accepted Answer

A decrease in Japanese interest rates would cause the demand for Canadian dollars to increase as investors seek higher returns from Canadian investments. This would result in an increase in the exchange rate (shown on the y-axis) and a shift from supply curve S1 to supply curve S2. Therefore, option D is the correct answer. The other choices may have an impact on the Canadian economy but would not directly cause the changes shown in the graph.

Figure 143 Alt Text for Figure 14