Holding all else constant,an increase in Canada's real GDP will _________ the supply of dollars in the foreign exchange market and _________ the equilibrium Mexican peso-dollar exchange rate.

Question

Quizplus · Accepted Answer

An increase in Canada's real GDP will increase the supply of Canadian dollars in the foreign exchange market as there will be a higher demand for Canadian goods and services. This increase in supply will cause the value of the Canadian dollar to decrease relative to other currencies, including the Mexican peso, leading to a decrease in the equilibrium peso-dollar exchange rate. Therefore, the correct answer is B.

Holding All Else Constant,an Increase in Canada's Real GDP Will