Exhibit 20-7 Suppose That in Response to the Demand

Multiple Choice

Exhibit 20-7 Suppose that in response to the demand shift shown in Exhibit 20-7, Mexico's central bank takes action to protect its currency, the peso, from depreciating.Enforcing a floor such as Mexico establishes is

A) easier in the long run, when policy makers at the central bank can focus beyond temporary fluctuations, than in the short run
B) easier in the long run, since over time new funds are always earned in international goods transactions
C) harder in the long run, when policy makers at the central bank can become confused by repeated fluctuations
D) easier in the long run, since a country's import and export position will not change rapidly as long as the floor is maintained
E) harder in the long run, since policy makers at the central bank will run out of reserves of other currency with which to buy back domestic currency