Suppose the Bank of Canada Follows a Fixed- Exchange Rate

question 84

Multiple Choice

Suppose the Bank of Canada follows a fixed- exchange rate of 0.50 U.K.pounds per Canadian dollar.If the demand for dollars temporarily decreases, to maintain the target exchange rate, the Bank can

• A)increase Canadian imports.
• B)violate purchasing power parity.
• C)increase Canadian exports.
• D)sell dollars.
• E)buy dollars.