-Under a system of flexible exchange rates,the shift in demand from D₀ to D₁ and in supply from S₀ to S₁: A)will ultimately cause Canada's exports to decline and its imports to rise B)causes the dollar to appreciate C)causes the pound to depreciate D)causes the dollar to depreciate E)has no effect on the values of the two currencies

Question

Quizplus · Accepted Answer

Under a flexible exchange rate system, a shift in demand from D₀ to D₁ and supply from S₀ to S₁ typically results in the depreciation of the currency in question, in this case, the dollar. This is because an increase in supply or a decrease in demand for the dollar would lead to a lower exchange rate, causing depreciation.

-Under a System of Flexible Exchange Rates,the Shift in Demand