Economics and Inflation Rates
The equilibrium interest rate in Canada is 8%. Canada is a small open economy. The interest rate in the U.S. is 4%. Now suppose that the interest rate in the U.S. rises to 6%. What can explain this change in the U.S. interest rate?
Analyze the country of Canada: after the interest rate in U.S. becomes 6%, explain what happens in Canada with savings, investment, NCO, exchange rate and trade balance?