There is quite a bit of trade between Canada and the east coast of the United St

Question

There is quite a bit of trade between Canada and the east coast of the United States. After Super Storm Sandy destroyed an immense amount of property along the U.S. eastern seaboard, firms in the area directed their own production toward the rebuilding effort, but they also greatly expanded their purchases from Canada to help with the rebuilding.

Consider the graph of Canada’s economy depicted below. Before the storm, the Canadian economy was at the intersection of the AD1 aggregate demand curve and the SRAS1 short-run aggregate supply curve, which is depicted by Point A. Suppose that for the remainder of this question, Sandy did not do any damage to Canada. This is an approximate characterization of the impact of the storm, because most of the damage that it inflicted was in the United States.

When the east coast of the United States starts rebuilding after the storm, the economy in Canada will be influenced in the following way.

A. Long-run aggregate supply

B. Short-run aggregate supply

A. left,

A. Point A

.B. Point B

.C. Point C

.D. Point D.

Explanation / Answer

The AD will shift to the right because of the increased investment and government expenditure.

Will shift to the right.

Moving the Canadian economy to point (c) with Y at Y3 and P at P3.

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