Under a system of freely flexible (floating)exchange rates, a U.S. trade deficit with Mexico will tend to cause
A)the U.S. government to ration pesos to U.S. importers.
B)a flow of gold from the United States to Mexico.
C)an increase in the peso price of dollars.
D)an increase in the dollar price of pesos.

Question

Quizplus · Accepted Answer

Under a floating exchange rate system, a U.S. trade deficit with Mexico increases the demand for pesos (to pay for Mexican goods), leading to an increase in the dollar price of pesos.

Under a System of Freely Flexible (Floating)exchange Rates, a U