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. What will happen to the Canadian IS curve as a result of the leftward shift of the U.S. IS curve?

A) It will shift rightward.
B) It will shift leftward.
C) It will not change.
D) The IS curve will show an increase.