Refer to the Diagram Below Where D and S Are

question 64

Multiple Choice

Refer to the diagram below where D and S are Canada's demand for and supply of pesos.At the equilibrium exchange rate, E, Canada's balance of payments is in equilibrium.Under a system of flexible exchange rates, the shift in demand from D₁ to D₂ will:

• A)ultimately cause Canadian exports to decline and its imports to rise.
• B)cause the dollar price of pesos to increase.
• C)cause the peso to depreciate.
• D)cause the dollar to depreciate.

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