Question

The United States produces computers and sells them to Canada. At the same time Canada produces cars and sells them to the United States. Suppose there is an appreciation in the dollar. This will​ cause:

A. A decrease in imports into the United States and a decrease in exports to Canada​, which will cause a decrease in aggregate demand and real GDP.
B. A decrease in imports into the United States and an increase in exports to Canada​, which will cause an increase in aggregate demand and real GDP.
C. An increase in imports into the United States and a decrease in exports to Canada​, which will cause a decrease in aggregate demand and real GDP.
D. An increase in imports into the United States and an increase in exports to Canada​, which will cause an increase in aggregate demand and real GDP.

Answer 1

C) An increase in imports into the United States and a decrease in exports to Canada​, which will cause a decrease in aggregate demand and real GDP.

Step-by-step explanation:

This is because an appreciation in dollar increases the price of computers for Canada which are purchased via USD. This reduces the Canadian demand for computers. This also means that as USD is now stronger they can buy Canadian products as cheaper. This then increases the imports in to the USA and decreases the exports.

As the exports have fallen and more American demand is for the imports, aggregate demand and GDP which is associated with locally produced goods - falls.

Hope that helps.