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

A rise in the world price of copper would increase demand for Canadian dollars as foreign buyers need more Canadian currency to purchase copper. This would lead to an appreciation of the Canadian dollar, making other Canadian exports more expensive and less competitive, causing those sectors to contract.

Suppose Canada Has a Flexible Exchange Rate