Suppose the Canadian price level increased relative to price levels in foreign countries.How would domestic aggregate supply and aggregate demand curves be affected?
A) The aggregate supply curve would shift outward, and the aggregate demand curve would remain unchanged.
B) The aggregate supply curve would shift inward, and the aggregate demand curve would remain unchanged.
C) The aggregate demand curve would shift outward, and the aggregate supply curve would remain unchanged.
D) The aggregate demand curve would shift inward, and the aggregate supply curve would remain unchanged.

Question

Suppose the Canadian price level increased relative to price levels in foreign countries.How would domestic aggregate supply and aggregate demand curves be affected?  
A) The aggregate supply curve would shift outward, and the aggregate demand curve would remain unchanged. 
B) The aggregate supply curve would shift inward, and the aggregate demand curve would remain unchanged. 
C) The aggregate demand curve would shift outward, and the aggregate supply curve would remain unchanged. 
D) The aggregate demand curve would shift inward, and the aggregate supply curve would remain unchanged.

Quizplus · Accepted Answer

If the Canadian price level increases relative to price levels in foreign countries, Canadian goods and services will become more expensive and less competitive internationally. This will lead to a decrease in exports and an increase in imports, causing a decrease in aggregate demand. As a result, the aggregate demand curve will shift inward. Additionally, the increase in prices will increase the cost of production for domestic firms, leading to a decrease in aggregate supply. Therefore, the aggregate supply curve will also shift inward.

Suppose the Canadian Price Level Increased Relative to Price Levels