Question

When demand for Canada’s exports falls:

	a.	supply of the Canadian dollar in the foreign exchange market rises.
	b.	the U.S. federal government will always respond by increasing U.S. tax rates.
	c.	the U.S. federal government will always respond by increasing U.S. exports.
	d.	Canadian producers will sell more goods to foreigners.
	e.	demand of the Canadian dollar in the foreign exchange market falls.

Answer 1

In order to pay for Canadian goods that are imported by other countries, Canadian dollars would be demanded by such countries.

So, if demand for Canada's exports fall then this implies that countries that import goods from Canada has reduced their demand for Canadian goods.

This will also reduce their demand for Canadian dollars to pay for Canadian goods.

Thus, the demand of the Canadian dollar in the foriegn exchange market falls.

Hence, the correct answer is the option (e).