A large increase in the income level in Mexico along with no growth in the U.S. income level is normally expected to cause (assuming no change in interest rates or other factors) a(n) ____ in Mexican demand for U.S. goods, and the Mexican peso should ____.
A) increase; appreciate
B) increase; depreciate
C) decrease; depreciate
D) decrease; appreciate

Question

A large increase in the income level in Mexico along with no growth in the U.S. income level is normally expected to cause (assuming no change in interest rates or other factors) a(n) ____ in Mexican demand for U.S. goods, and the Mexican peso should ____.​
A) ​increase; appreciate
B) ​increase; depreciate
C) ​decrease; depreciate
D) ​decrease; appreciate

Quizplus · Accepted Answer

An increase in income level in Mexico would likely lead to an increase in Mexican demand for U.S. goods due to higher purchasing power. As Mexicans buy more U.S. goods, they need more U.S. dollars, selling pesos to buy dollars, which increases the supply of pesos and decreases its value, leading to the depreciation of the peso.

A Large Increase in the Income Level in Mexico Along