Canada is the world's largest exporter of sawn wood, which is used as an input in products produced by other countries. Cutbacks at Canadian lumber factories caused a rise in lumber prices. How does this affect the Phillips curve in China?

Question

Quizplus · Accepted Answer

The rise in lumber prices due to cutbacks at Canadian lumber factories would likely lead to an increase in the cost of inputs for Chinese producers who use sawn wood in their production process. This increase in input costs would cause a decrease in aggregate supply, shifting the Phillips curve to the left (Option B). As a result, the economy would experience both higher prices and higher unemployment in the short run, which is known as stagflation.

Canada Is the World's Largest Exporter of Sawn Wood, Which