An appreciating Canadian dollar causes a negative demand shock because export spending decreases and import spending increases.

Question

Quizplus · Accepted Answer

An appreciating Canadian dollar makes Canadian exports more expensive and less competitive in foreign markets, leading to a decrease in export spending. At the same time, it makes imports cheaper, leading to an increase in import spending. These two factors combine to create a negative demand shock on the Canadian economy.

An Appreciating Canadian Dollar Causes a Negative Demand Shock Because