In the open-economy macroeconomic model, other things the same, when a Canadian resident imports a foreign good, our model treats this as a decrease in the demand for dollars in the foreign-currency exchange market.

Question

Quizplus · Accepted Answer

When a Canadian resident imports a foreign good, they need to exchange Canadian dollars for the foreign currency to pay for the import. This increases the supply of Canadian dollars in the foreign exchange market, and therefore decreases the demand for Canadian dollars, as fewer people will want to hold Canadian dollars to exchange for the foreign currency.

In the Open-Economy Macroeconomic Model, Other Things the Same, When