In the summer of 2018, a time when U.S. inflation was rising and output was close to potential, a story in The Globe and Mail reported that the release of strong employment-growth data for the United States led to a plunge in prices on the U.S. stock market.

a. Explain why high employment growth would lead people to expect the U.S. central bank to tighten its monetary policy.

b. Explain why higher U.S. interest rates would lead to lower prices of U.S. stocks.

c. How would you expect this announcement to affect Canada?