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Trade and labor mobility
Suppose that the U.S. dollars-Canadian dollars exchange rate is flexible and is determined by the forces of demand for and supply of the two currencies. Assume also that labor is mobile between the United States and Canada due to low transportation costs. Which of the following situations is likely to happen as a result of a simultaneous increase in the demand for U.S. goods and decrease in the demand for Canadian goods?
A. The Canadian unemployment rate increases, and the country undergoes bad economic times for a sustained period. B. The U.S. unemployment rate increases, and the country undergoes bad economic times for a sustained period. C. The Canadian unemployment rate rises at first, but it soon drops as unemployed Canadians move to the United States for employment. D. The U.S. unemployment rate rises at first, but it soon drops as unemployed Americans move to Canada for employment.
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