MGEA06H3 Study Guide - Midterm Guide: Price Level, Aggregate Supply, Aggregate Demand

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Mgea06 chapter 12 part 1 review question answer key. See solutions at the back of the text. When a fall in the value of the canadian dollar against other currencies makes canadian final goods and services cheaper to foreigners; this represents a shift of the aggregate demand curve. Although foreigners may be demanding more canadians goods because the price of those goods in their own currency is lower, there is no change in the canadian aggregate price level. From canada perspective, there is an increase in aggregate output demanded at any given aggregate price level. The short-run aggregate supply curve slopes upward because nominal wages are sticky in the short run. Nominal wages are fixed by either formal contracts or informal agreements in the short run. So, as the aggregate price level falls and nominal wages remain the same, production costs will not fall by the same proportion as the aggregate price level.

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