Refer to the Diagram Below Where D and S Are

Multiple Choice

Refer to the diagram below where D and S are Canada's demand for and supply of pesos.At the equilibrium exchange rate, E, Canada's balance of payments is in equilibrium.Under a system of flexible exchange rates, the shift in demand from D₁ to D₂ will:

A) ultimately cause Canadian exports to decline and its imports to rise.
B) cause the dollar price of pesos to increase.
C) cause the peso to depreciate.
D) cause the dollar to depreciate.