Everything else held constant, a shift in tastes in Canada towards Canadian goods will ________ net exports in Canada and cause the quantity of aggregate output demanded to ________ in Mexico.
A) decrease; rise
B) decrease; fall
C) increase; rise
D) increase; fall

Question

Quizplus · Accepted Answer

A shift in tastes towards Canadian goods will increase demand for Canadian goods in Canada, leading to an increase in net exports. Since Mexico is not Canada, there would not be a direct effect on the quantity of aggregate output demanded in Mexico. However, the increase in demand for Canadian goods in Canada could lead to increased imports of Canadian goods from Mexico, which could lead to an increase in the quantity of aggregate output demanded in Mexico. Overall, the net effect would likely be a decrease in the quantity of aggregate output demanded in Mexico due to the decrease in net exports.

Everything Else Held Constant, a Shift in Tastes in Canada