Question

Analyze the short-run effects on the Canadian economy of each of the following events using aggregate expenditure (AE) and aggregate demand and supply (AD-AS) diagrams. In each case, identify the cause of any shift or movement along AE, AD, and/or AS and note the effect on national income (Y) and the price level (P).

(a) A change in tastes leads Canadian consumers to transfer their video spending from domestic cable TV services to domestic video streaming services. [4]

(b) In response to the tax reform package recently passed in the US, the Canadian government reduces domestic tax rates. [5]

(c) As a result of the collapse of the NAFTA renegotiation, Canadian exports are reduced. [5]

(d) An increase in wages leads to an increase in unit costs for Canadian producers. [5] (e) As a result of rapid technological change in renewable energy production the price of energy decreases leading to a decrease in unit costs for all Canadian producers and a decrease in the dollar value of Canadian oil exports. [7]

Answer 1