What effect does a depreciation of the dollar have on real GDP in Canada in the short run?
A)Real GDP will fall.
B)Real GDP will rise.
C)Real GDP will be unaffected by the depreciation of the dollar.
D)Real GDP will be unchanged, but nominal GDP will rise.
E)Real GDP will fall, but nominal GDP will rise.

Question

Quizplus · Accepted Answer

A depreciation of the dollar means that the Canadian dollar appreciates. This makes Canadian goods and services relatively cheaper in comparison to foreign goods and services. This will increase exports and decrease imports, leading to an increase in aggregate demand and hence, real GDP in the short run.

What Effect Does a Depreciation of the Dollar Have on Real