Question

Explain for each event whether it changes the quantity of real GDP demanded or aggregate demand.

A) Canada's exports to the European Union boom.

B) Canadian firms build new pipelines across the nation.

C) Foreign exchange dealers expect the Canadian dollar next year to appreciate against all currencies.

Answer 1

A - The rise in the exports will lead to the increase in value of Net exports and hence value of AD will increase

B - The building of new pipelines signifies the investment. This being the part of AD , will increase the value of Aggregate demand.

C - This event will lead to the change in the price levels in between countries. Hence the chages in the price level i.e appreciation of currency will lead to lower Quantity of Real GDP demanded because of the decline in net exports resulting from increased price level due to appreciation.