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Refer to the Diagram Below

question 86

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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: Refer to the diagram below. The initial demand for and supply of pesos are shown by D<sub>1</sub> and S<sub>1</sub>. Suppose Canada reduces its imports of Mexican goods, shifting its demand for pesos from D<sub>1</sub> and D<sub>2</sub>. 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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