There is a flexible exchange rate system and only two countries in the world, the United States and Mexico. An increase in income growth in Mexico relative to income growth in the United States will cause the

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An increase in income growth in Mexico relative to income growth in the United States will cause an increase in demand for Mexican goods and services, leading to an increase in demand for pesos to pay for them. This increased demand for pesos will cause the peso to appreciate in value relative to the dollar. At the same time, there will be decreased demand for U.S. goods and services in Mexico, leading to a decrease in demand for dollars, causing the dollar to depreciate relative to the peso.

There Is a Flexible Exchange Rate System and Only Two