Suppose Canada has a flexible exchange rate.If there is a rise in the world price of copper (a major Canadian export),other exporting sectors of the Canadian economy will likely ________ due to the resulting ________ of the Canadian dollar.

Question

Quizplus · Accepted Answer

When the world price of copper rises, demand for Canadian copper increases, leading to a higher demand for Canadian dollars to pay for the copper. This increased demand causes the Canadian dollar to appreciate. Other exporting sectors may contract because their goods become more expensive for foreign buyers due to the stronger Canadian dollar.

Suppose Canada Has a Flexible Exchange Rate