Question

Canada is the largest trading partner of the U.S. Suppose the U.S. economy keeps growing. What will happen to the AD curve for Canada?

Answer 1

If Canada is the largest trading partner for the US, then this will mean a large part of Canadian exports will go the US and US purchasers. This will mean that as the US economy keeps growing then given the marginal propensity to import the level of imports from Canada by the US will increase. The net exports in Canada will increase and the AD curve for Canada will shift rightwards causing an increase in prices and output. Which increases more Canadian to US exports or imports will depend on the level of growth of income. But in general the AD curve for Canada will shift rightwards.