Question

In: Economics

: Suppose there is a shift in world demand towards Canada’s net exports. Explain the impact...

: Suppose there is a shift in world demand towards Canada’s net exports. Explain the impact on aggregate expenditure and the subsequent shift in the DD curve.

Solutions

Expert Solution

Nowadays trade has become more important globally, as a result export and import have assumed huge importance in in every country on the planet.The difference between exports and imports is known as net exports.

The main determinants of net Exports include income, relative prices ,exchange rate ,Technology etc. Net exports affect both the slope and the position of aggregate demand curve of an economy.

Here,we are dealing with the Canadian economy, and there is shift in world demand towards Canada's net exports.This shift can be positive or negative. Net exports may increase or decrease.

At first let's look at the situation of increase in net exports as shown in the diagram below.

Now let's look at another situation , when there's a decline in net exports.

Changes in net exports are supposed to have strong repercussions on the national economy. For example, reduction in net exports often leads to the slow down of the economy.


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