Refer to the Diagram Below

question 90

Multiple Choice

Refer to the diagram below.The initial demand for and supply of pesos are shown by D₁ and S₁.Suppose Canada reduces its imports of Mexican goods, shifting its demand for pesos from D₁ and D₂.If Canada was operating under a system of exchange controls that maintains the exchange rate at E, the Canadian government would:

• A)find that, at the controlled exchange rate, pesos would be in surplus.
• B)be faced with deteriorating terms of trade.
• C)be faced with the problem of rationing BG pesos to Canadian importers who want BF pesos.
• D)be faced with the problem of rationing BF pesos to Canadian importers who want BG pesos.

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Definitions:

Merchandise Balance

The difference in value between a country's imports and exports of goods.

Services Balance

The difference between a country's exports and imports of services.

Balance Of Trade

The difference between a country's exports and imports of goods.

Comparative Advantage

An economic principle that states that an entity (e.g., country, region, or individual) can produce a good at a lower opportunity cost compared to others, leading to more efficient trading possibilities.