A depreciating Canadian dollar causes a positive demand shock because export spending increases and import spending decreases.

Question

Quizplus · Accepted Answer

A depreciating Canadian dollar makes Canadian exports cheaper for foreign buyers, which increases demand for Canadian products and boosts export spending. Meanwhile, importing foreign goods becomes more expensive, causing a decrease in import spending. Therefore, a depreciating Canadian dollar causes a positive demand shock.

A Depreciating Canadian Dollar Causes a Positive Demand Shock Because