In Canada, Proponents of a Flexible Exchange Rate Argue That

question 125

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

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Definitions:

Culture

The beliefs, values, rules, and customs that exist within a group of people who share a common language and environment and that are transmitted through learning from one generation to the next.

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Civilization

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Lineup Identification

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