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 nation's net exports.
D)cannot permanently maintain the exchange rate target of 90 U.S. cents per Canadian dollar.
E)none of the above.

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 nation's net exports. 
D)cannot permanently maintain the exchange rate target of 90 U.S. cents per Canadian dollar. 
E)none of the above.

Quizplus · Accepted Answer

The correct answer is D because the Bank of Canada cannot permanently maintain the exchange rate target of 90 U.S. cents per Canadian dollar if the demand for dollars permanently decreases to D2.

Refer to the Figure Below to Answer the Following Questions