Suppose That Canada Decides to Peg Its Dollar ($C, or the Loonie)

Multiple Choice

Suppose that Canada decides to peg its dollar ($C, or the loonie) to the U.S. dollar at an exchange rate of $C1 = $US1. Now suppose that the increase in the price of oil in the second half of 2007 causes the IS curve in the United States to shift to the left. If all other things remain unchanged, what will happen to U.S. interest rates?

A) They will rise.
B) They will fall.
C) They will not change.
D) They will rise dramatically.