If the Canadian dollar was fixed and the demand for Canadian goods decreased, the Canadian dollar would become _____ and there would be a _____ of Canadian dollars in the international markets.Multiple choice question.undervalued; surplusundervalued; shortageovervalued; shortageovervalued; surplus
Question
If the Canadian dollar was fixed and the demand for Canadian goods decreased, the Canadian dollar would become _____ and there would be a _____ of Canadian dollars in the international markets.Multiple choice question.undervalued; surplusundervalued; shortageovervalued; shortageovervalued; surplus
Solution
The correct answer is "overvalued; surplus".
Here's why:
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If the demand for Canadian goods decreases, it means that fewer people are buying Canadian goods.
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To buy Canadian goods, people need Canadian dollars. So, if fewer people are buying Canadian goods, then fewer people need Canadian dollars.
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If the Canadian dollar is fixed, it means that its value does not change according to market conditions. So, even though fewer people need Canadian dollars, the value of the Canadian dollar remains the same.
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This creates a situation where there are more Canadian dollars available than people want to buy. This is known as a surplus.
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Because there are more Canadian dollars available than people want to buy, the Canadian dollar becomes overvalued. This means that it is worth more than its market value.
So, the correct answer is "overvalued; surplus".
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