Question 5 (20 marks)

Assume that Canada is initially in short run equilibrium with price level of P1 and GDP of Y1. Discuss how each of the following four events would affect aggregate demand, the price level and real GDP of Canada (graph each scenario).

1.There is an appreciation in the US exchange rate, Canada is the largest importer from the US.

1.Japan imposes new tariff restrictions to imports from Canada.

2.There is an recession in Mexico, which is a large importer of Canadian agricultural goods.

3.Consumer's preferences in France move toward Canadian products.