In Canada,proponents of a Flexible Exchange Rate Argue That the Flexible

question 151

Multiple Choice

In Canada,proponents of a flexible exchange rate argue that the flexible exchange rate acts as a "shock absorber." By this,they mean that

• A)negative shocks to the Canadian economy will be fully absorbed by a depreciation of the dollar,causing net exports to rise.
• B)a flexible exchange rate protects Canadian exporters from increases in the prices of their products in the rest of the world.
• C)flexible exchange rates allow for more certainty with regard to the profitability of international transactions,which dampens negative effects on output and employment.
• D)external shocks to the Canadian economy can be partially absorbed by fluctuations in the exchange rate,which dampen the effect of the shock on output and employment.
• E)positive shocks to the Canadian economy will be fully absorbed by an appreciation of the dollar,causing net exports to fall.

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