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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 the US GDP will increase the exports of the Canadian economy and that will shift the aggregate demand curve to the right. As the demand of the Canadian goods have risen, it will decrease the unemployment in the market, raise the price and the interest rate in the local market.

It will decrease the saving and increase the investment in the market and cause the Canadian currency to appreciate. Here, the older equilibrium was at A and new equilibrium is at B.   

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