Multiple Choice QuestionBecause a country's imports vary directly with its income level, a rise in Canada's income level relative to that of the United States results in which of the following?Multiple choice question.The purchase of fewer U.S. goods by Canadians and the depreciation of the Canadian dollarThe purchase of more Canadian goods by Americans and the depreciation of the U.S. dollarThe purchase of fewer Canadian goods by Americans and the depreciation of the U.S. dollarThe purchase of more U.S. goods by Canadians and the depreciation of the Canadian dollar
Question
Multiple Choice QuestionBecause a country's imports vary directly with its income level, a rise in Canada's income level relative to that of the United States results in which of the following?Multiple choice question.The purchase of fewer U.S. goods by Canadians and the depreciation of the Canadian dollarThe purchase of more Canadian goods by Americans and the depreciation of the U.S. dollarThe purchase of fewer Canadian goods by Americans and the depreciation of the U.S. dollarThe purchase of more U.S. goods by Canadians and the depreciation of the Canadian dollar
Solution
The correct answer is: The purchase of more U.S. goods by Canadians and the depreciation of the Canadian dollar.
Here's why:
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If Canada's income level rises relative to that of the United States, Canadians have more purchasing power. This means they can afford to buy more goods, including those imported from the U.S.
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As Canadians buy more U.S. goods, the demand for U.S. dollars increases (since they need U.S. dollars to buy U.S. goods). This increased demand for U.S. dollars relative to Canadian dollars leads to the depreciation of the Canadian dollar.
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