Foreign exchange dealers expect the Canadian dollar next year to appreciate against all currencies. What is the effect on the quantity of real GDP demanded or aggregate demand in Canada?
A)The quantity of Canadian real GDP demanded increases.
B)The quantity of Canadian real GDP demanded decreases.
C)Canadian aggregate demand increases.
D)Canadian aggregate demand decreases.
E)There is no change to either the quantity of real GDP demanded or to aggregate demand.

Question

Quizplus · Accepted Answer

If foreign exchange dealers are expecting the Canadian dollar to appreciate against all currencies, this means that foreign investors will find Canadian goods and services relatively cheaper, and they will increase their demand for Canadian exports. This increase in demand for Canadian goods and services leads to an increase in Canadian aggregate demand. Therefore, the correct choice is C.

Foreign Exchange Dealers Expect the Canadian Dollar Next Year to Appreciate