Suppose that Canada pegs its dollar to the U.S. dollar at a rate of $C1 = $US1 and that Canada is a major exporter of crude oil to the United States. The increase in the price of oil that occurred in the second half of 2007 is likely to:
A) cause asymmetric shocks to the U.S. and Canadian economies that will make it difficult for Canada to maintain the $C1 = $US1 exchange rate.
B) cause symmetric shocks to the U.S. and Canadian economies that will make it difficult for Canada to maintain the $C1 = $US1 exchange rate.
C) cause asymmetric shocks to the U.S. and Canadian economies and make it easier for Canada to maintain the $C1 = $US1 exchange rate.
D) cause symmetric shocks to the U.S. and Canadian economies and make it difficult for Canada to maintain the $C1 = $US1 exchange rate.
Answer: A) cause asymmetric shocks to the U.S. and Canadian economies that will make it difficult for Canada to maintain the $C1 = $US1 exchange rate.
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