Exhibit 16-6

-Refer to the graph in the exhibit.Imagine that only two countries exist, Mexico and Canada.Suppose Mexico's central bank wants to protect its currency from depreciating in response to the demand shift shown.Which policy would Mexico's central bank most likely choose?

Question

Exhibit 16-6
 
-Refer to the graph in the exhibit.Imagine that only two countries exist, Mexico and Canada.Suppose Mexico's central bank wants to protect its currency from depreciating in response to the demand shift shown.Which policy would Mexico's central bank most likely choose?

Quizplus · Accepted Answer

To protect its currency from depreciating, Mexico's central bank would likely purchase Mexican pesos with reserves of Canadian dollars. This action would increase the demand for pesos, supporting its value against the Canadian dollar.

Exhibit 16-6 -Refer to the Graph in the Exhibit.Imagine That Only Two