Assume the Canadian demand elasticity for imports equals 1.2 while the foreign demand elasticity for Canadian exports equals 1.8. Responding to a trade deficit, suppose the Canadian dollar depreciates by 10 percent. For Canada, the depreciation would lead to a(n) ______

A. worsening trade balance - a larger deficit
B. improving trade balance - a smaller deficit
C. unchanged trade balance

Correct Answer: B

This is because the both demands are elastic.