Following the economic crisis in 1994-1995, the Mexican peso fell sharply in value.What will be the main economic effects in Mexico of such an exchange rate change?

Question

Quizplus · Accepted Answer

A depreciation of the Mexican peso makes imports more expensive and exports cheaper to foreign buyers. This increases the demand for domestically produced goods (increasing aggregate demand) and makes imported inputs more expensive for domestic producers (decreasing aggregate supply), leading to higher prices. Output may increase due to higher demand for exports and domestically produced goods substituting for more expensive imports.

Following the Economic Crisis in 1994-1995, the Mexican Peso Fell