FIGURE 34-5
-Refer to Figure 34-5. If the supply curve of foreign exchange shifts from S0 to S1, the Bank of Canada could maintain a fixed exchange rate at e0 by

Question

Quizplus · Accepted Answer

To maintain a fixed exchange rate at e0 when the supply curve shifts from S0 to S1, the Bank of Canada would need to sell foreign currency reserves to increase the supply of Canadian currency in the foreign exchange market, thus counteracting the shift and maintaining the exchange rate.

FIGURE 34-5 -Refer to Figure 34-5. If the Supply Curve of Foreign