The figure given below depicts the equilibrium exchange rate between the U.S dollar and the Mexican peso.?Figure 13.2

-Refer to Figure 13.2. When the Mexican demand for U.S. dollars rises from D₂ to D₁ and the relevant supply curve is S₁:
A) the U.S. dollar depreciates in value relative to the peso.
B) the Mexican peso depreciates in value relative to the U.S. dollar.
C) the Mexican peso appreciates in value relative to the U.S. dollar
D) U.S. imports from Mexico decreases.
E) Mexican net exports to the United States becomes positive.

Question

The figure given below depicts the equilibrium exchange rate between the U.S dollar and the Mexican peso.?Figure 13.2
 
-Refer to Figure 13.2. When the Mexican demand for U.S. dollars rises from D₂ to D₁ and the relevant supply curve is S₁:
A) the U.S. dollar depreciates in value relative to the peso. 
B) the Mexican peso depreciates in value relative to the U.S. dollar. 
C) the Mexican peso appreciates in value relative to the U.S. dollar 
D) U.S. imports from Mexico decreases. 
E) Mexican net exports to the United States becomes positive.

Quizplus · Accepted Answer

When the Mexican demand for U.S. dollars increases (shifting from D₂ to D₁) with the supply curve remaining at S₁, it indicates a higher demand for U.S. dollars in exchange for Mexican pesos. This increased demand for U.S. dollars makes the dollar appreciate in value relative to the peso, meaning the peso depreciates in value relative to the U.S. dollar.

The Figure Given Below Depicts the Equilibrium Exchange Rate Between