Holding all else constant, an increase in U.S. real GDP will ________ the supply for dollars in the foreign exchange market and ________ the equilibrium Mexican peso/U.S. dollar exchange rate.
A)increase; increase
B)increase; decrease
C)decrease; decrease
D)decrease; increase

Question

Quizplus · Accepted Answer

Increased U.S. real GDP increases U.S. demand for Mexican goods and therefore increases the supply of dollars in the foreign exchange market as Americas trade more of their dollars for pesos. This increase in supply will decreases the exchange rate of pesos per dollar.

Holding All Else Constant, an Increase in U