-Under a system of fixed exchange rates,the shift in demand from D₀ to D₁ and in supply from S₀ to S₁ will cause: A)no change in Canada's stocks of international monetary reserves B)a British balance-of-payments deficit C)a Canadian balance-of-payments deficit D)a Canadian balance-of-payments surplus E)an immediate fall in the value of the Canadian dollar

Question

Quizplus · Accepted Answer

Under a fixed exchange rate system, if demand for a currency increases and supply decreases, the country may face a balance-of-payments deficit as it uses its reserves to maintain the fixed rate.

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