If the dollar appreciates against the Mexican peso,

Question

Quizplus · Accepted Answer

DWhen the dollar appreciates against the Mexican peso, it means that each dollar can buy more pesos than before. This makes Canadian goods more expensive in Mexico because Mexicans have to spend more pesos to buy the same amount of Canadian dollars (C). As Canadian exports become more expensive, Mexico might reduce its purchases of Canadian goods, potentially worsening Canada's current account balance, which is the opposite of what is suggested in D. Therefore, an appreciation of the dollar against the peso would likely lead to a decrease in Canada's current account balance, not a rise, making my initial interpretation of D incorrect. The correct interpretation should focus on the direct effects of currency appreciation on trade prices and costs, not on the broader economic indicators like the current account balance without considering the context of trade dynamics and elasticity of demand for exports and imports.

If the Dollar Appreciates Against the Mexican Peso