Question

does the average CAD/XAU in Canada affect GDP?

does the average CAD/XAU in Canada affect GDP?

Homework Answers

Answer #1

Yes.

If the exchange rate falls such that CAD depreciates, Canadian exportable goods become cheaper in global market, and imported goods become costlier. So exports rise and imports fall, increasing net exports. Higher net exports increases aggregate demand, which shifts AD curve rightward and increases Canadian GDP.

In contrast, if the exchange rate rises such that CAD appreciates, Canadian exportable goods become costlier in global market, and imported goods become cheaper. So exports fall and imports rise, decreasing net exports. Lower net exports decreases aggregate demand, which shifts AD curve leftward and decreases Canadian GDP.

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