-Refer to the above diagram.The initial demand for and supply of pesos are shown by D₁ and S₁.If the decline in Canadian imports from Mexico described in the previous question occurred under a system of flexible exchange rates: A) gold would flow from Mexico to Canada. B) the peso price of dollars would rise from 1/B pesos equals $1 to,1/A pesos equals $1. C) a problem of rationing a shortage of pesos would arise in Canada. D) the dollar price of pesos would increase to C dollars equals 1 peso.

Question

Quizplus · Accepted Answer

If the decline in Canadian imports from Mexico described in the previous question occurred under a system of flexible exchange rates, the peso price of dollars would rise from 1/B pesos equals $1 to,1/A pesos equals $1. This is because the decrease in demand for pesos would lead to a decrease in the value of the peso relative to the dollar.

-Refer to the Above Diagram