Refer to the figure below to answer the following questions.

Figure 25.3.1
-In Figure 25.3.1, suppose the demand for dollars permanently decreases to D₂. To maintain the target, the Bank of Canada
A)buys dollars.
B)sells dollars.
C)must decrease the country's net exports.
D)cannot permanently maintain the exchange rate target of 90 U.S. cents per Canadian dollar.
E)must increase the country's net exports.

Question

Refer to the figure below to answer the following questions.
  
Figure 25.3.1
-In Figure 25.3.1, suppose the demand for dollars permanently decreases to D₂. To maintain the target, the Bank of Canada
A)buys dollars. 
B)sells dollars. 
C)must decrease the country's net exports. 
D)cannot permanently maintain the exchange rate target of 90 U.S. cents per Canadian dollar. 
E)must increase the country's net exports.

Quizplus · Accepted Answer

If the demand for dollars permanently decreases, the Bank of Canada must sell dollars to maintain the target exchange rate.

Refer to the Figure Below to Answer the Following Questions