Following the launch of new electric cars by Toyota and Honda, demand for Japanese cars increases for all values of the real exchange rate, domestic GDP and foreign GDP. In other words, all things being equal, Domestic consumers prefer imports even more than before.

1. What is the effect on the NX curve of this change in consumer preferences?

2. What is the impact on equilibrium GDP on the goods market (i.e. for a given interest rate) and on Canada's net exports?

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1 The effect on the NX Net Exports curve would be a shift to the left This is because an increase in ... View the full answer