Refer to the diagram. The initial demand for and supply of pesos are shown by D₁ and S₁. Suppose the United States reduces its imports of Mexican goods, shifting its demand for pesos from D₁ to D₂. Under a system of freely floating exchange rates,
A)gold would flow from Mexico to the United States.
B)the dollar price of pesos would fall from B dollars equals 1 peso to A dollars equals 1 peso.
C)a problem of rationing a shortage of pesos would arise in the United States.
D)the dollar price of pesos would increase to C dollars equals 1 peso.

Question

Refer to the diagram. The initial demand for and supply of pesos are shown by D₁ and S₁. Suppose the United States reduces its imports of Mexican goods, shifting its demand for pesos from D₁ to D₂. Under a system of freely floating exchange rates,
A)gold would flow from Mexico to the United States. 
B)the dollar price of pesos would fall from B dollars equals 1 peso to A dollars equals 1 peso. 
C)a problem of rationing a shortage of pesos would arise in the United States. 
D)the dollar price of pesos would increase to C dollars equals 1 peso.

Quizplus · Accepted Answer

The Answer of  Refer to the diagram. The initial demand for and supply of pesos are shown by D₁ and S₁. Suppose the United States reduces its imports of Mexican goods, shifting its demand for pesos from D₁ to D₂. Under a system of freely floating exchange rates,
A)gold would flow from Mexico to the United States. 
B)the dollar price of pesos would fall from B dollars equals 1 peso to A dollars equals 1 peso. 
C)a problem of rationing a shortage of pesos would arise in the United States. 
D)the dollar price of pesos would increase to C dollars equals 1 peso.

Refer to the Diagram