The U.S. and Canada are major trading partners. Suppose the Canadian dollar rises sharply in
Value 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
Events?

Question

Quizplus · Accepted Answer

The appreciation of the Canadian dollar makes Canadian goods more expensive for U.S. buyers, potentially reducing exports. However, strong income growth in the U.S. increases demand for Canadian exports. The net effect on Canada's net exports is indeterminate without knowing the relative magnitudes of these opposing forces.

The US and Canada Are Major Trading Partners