An appreciation of the Canadian dollar makes foreign goods cheaper relative to Canadian goods, resulting in a ________ in net exports in Canada and a ________ shift of the IS curve in Canada, everything else held constant.
A) fall; leftward
B) rise; leftward
C) fall; rightward
D) rise; rightward

Question

Quizplus · Accepted Answer

An appreciation of the Canadian dollar makes foreign goods cheaper relative to Canadian goods, resulting in a fall in net exports in Canada (as consumers will choose the cheaper foreign goods instead of Canadian goods, leading to a decrease in exports and an increase in imports). This fall in net exports would shift the IS curve leftward (as a decrease in net exports would lead to a decrease in aggregate demand at any given interest rate).

An Appreciation of the Canadian Dollar Makes Foreign Goods Cheaper