Finance

a)   On this website, under the heading Trade Balance, how much did Canada’s trade deficit increase by between October and November 2018?

https://www.international.gc.ca/economist-economiste/performance/monthly-mensuel.aspx?lang=eng

Explain why this trade deficit is not a debt but how it can become borrowing from abroad.

b)   What is the benefit to the issuer of a bond and the purchaser of a bond?  Why might they both prefer bonds to shares?

c)    Why would bond holders be worried if inflation were to increase and why wouldn’t investors in the stock market be quite so concerned?

d)     Use the Bank of Canada web sites to calculate the real interest rate (Use the policy interest rate I and the inflation rate). Find both an approximation and an exact measure.  Explain what is meant by real interest rates rather than nominal rates.

e)    Look at the forecast for Canada’s economic growth into 2019: 

https://www.conferenceboard.ca/press/newsrelease/2018/09/20/conference-board-of-canada-raises-forecast-for-canadian-economic-growth-in-2018?AspxAutoDetectCookieSupport=1

Explain how this might affect the demand for loanable funds.  Show this effect that this on a graph of the demand and supply of loanable funds. What is the effect on the rate of interest.

f)    The table shows the forecast for Canada’s Federal Budgetary Balance (it was forecast to be a deficit). Explain how a government budget deficit can lead to higher interest rates for the private sector. Why might this be a problem for private investment in capital? Use a graph to support your answer.

2. Money and the monetary system.

a) Venezuela’s hyper inflation has meant that many people are turning to barter as money loses its usefulness as a means of exchange.  Explain why turning to barter is one of the costs of hyper inflation (in other words, what makes barter less efficient than using money in normal circumstances).

b) Why is it important to control the supply of money?  How is the supply of crypto currencies controlled and what is done to stop the currency being duplicated?

c) In banking, how do banks increase liquidity in the economy and why is this important?

d) What effect would inflation have on the demand for money and why?  What will this do to the real interest rate? Use a graph to support your answer.  On your graph, explain the slope of the money supply.