n this exercise we will consider spillovers between the US and Canadian economies. Consider Canadian economy initially in a long-run equilibrium at the full-employment level of output Y f : Suppose money demand in the US increases as households become worried about the solvency of the US banking system. Analyze the eects of this shock on Canadas output, current account and CAD-USD exchange rate using AA-DD-XX model. What policy response would you recommend for the Canadian government (if any) to stabilize Canadian economy? 1