Question

The Covid pandemic had a large negative effect on the Canadian economy (as it did on all world economies). One channel through which this happened was by creating a large amount of economic uncertainty. Questions 1 ask you to focus on ways that increased economic uncertainty could impact the Canadian economy. (Canada has a flexible exchange rate regime.) 1. One impact of Covid was to create financial uncertainty which led Canadians to increase their demand to hold "liquidity" or money rather than bonds. With the aid of the DD/AA model diagram, explain the impact this desire to re-allocate asset holdings would have on the level of Canadian output (Y) and the exchange rate (E).

          The Covid pandemic had a large negative effect on the Canadian economy (as it did on all world economies). One channel through which this happened was by creating a large amount of economic uncertainty. Questions 1 ask you to focus on ways that increased economic uncertainty could impact the Canadian economy. (Canada has a flexible exchange rate regime.)
1. One impact of Covid was to create financial uncertainty which led Canadians to increase their demand to hold "liquidity" or money rather than bonds. With the aid of the DD/AA model diagram, explain the impact this desire to re-allocate asset holdings would have on the level of Canadian output (Y) and the exchange rate (E).

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