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Using the macroeconomic model studied, analyze the impact of the following events on Canadian savings, investment,...

Using the macroeconomic model studied, analyze the impact of the following events on Canadian savings, investment, exchange rate and trade balance in the Canadian economy:

b. An increase in U.S. GDP,

Explain with words + graph(s)

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Answer #1

An increase in US GDP raises the demand for Canadian exports. Hence exports are higher relative to imports which increases net exports. NX curve shifts up. This however, appreciates the currency immediately and so there is no change in trade balance. Since net capital outflow does not change, there is no change in real interest rate, savings or investment. Only exchange rate appreciates

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