The U.S. and Canada are major trading partners. Suppose the Canadian dollar rises sharply in Jvalue against the U.S. dollar. At the same time, strong income growth in the U.S. increases the demand for Canadian exports. What happens to Canada's net exports as a result of these two
Jevents?

Question

Quizplus · Accepted Answer

The effect on Canada's net exports is indeterminate because the appreciation of the Canadian dollar could decrease exports by making them more expensive for U.S. buyers, while increased U.S. demand due to income growth could increase exports. The net effect depends on the relative strength of these opposing factors.

The US and Canada Are Major Trading Partners