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 if the effect of Canadian dollar appreciation dominates that of strong income growth in the U.S.?

Question

Quizplus · Accepted Answer

A sharp rise in the Canadian dollar value against the US dollar makes Canadian exports more expensive for US consumers, which reduces demand for Canadian exports. Although strong income growth in the US increases the demand for Canadian exports, the effect of Canadian dollar appreciation dominates, and net exports will fall.

The US and Canada Are Major Trading Partners