Now suppose that U.S income rises. As a result, Canada’s exports to US increase. What happens to the position of AD curve in the output market in Canada (use only the aggregate demand curve on the graph, not AS) if Bank of Canada allows the exchange rate to be flexible. Clearly explain what happens in the foreign exchange market and money market as well.

Now suppose that U.S income rises. As a result, Canada’s exports to US increase. What happens to the position of AD curve in the output market in Canada (use only the aggregate demand curve on the graph, not AS) if Bank of Canada allows the exchange rate to be flexible. Clearly explain what happens in the foreign exchange market and money market as well.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter19: The International Monetary System: Order Or Disorder

Section: Chapter Questions

Problem 8DQ

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