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Suppose the Canadian economy is in long-run equilibrium. Then suppose the value of the Canadian dollar...

Suppose the Canadian economy is in long-run equilibrium. Then suppose the value of the Canadian dollar increases. At the same time, people in Canada revise their expectations so that the expected price level falls. What would we expect will happen in the short-run?

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Ans 1- in this case the Canadian economy is in long run equilibrium and suppose the value of the Canadian dollar increases and at the same time, people in Canada revise their expectations so that the expected price level falls.
Then with this effect in the short run the aggregate demand will increases because the aggregate demand is the total demand of all the consumers in the economy and as the price value of the goods decreases then it increases the purchasing power of the consumers and with this effect in the short run the aggregate demand increases.
The rise in the value of the Canadian dollar increases then in this case it enhances the overall purchasing efficiency of the people in the economy.

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