Holding all else constant,a decrease 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

A decrease in Canada's real GDP will lead to a decrease in the supply of dollars in the foreign exchange market, as there will be fewer Canadian goods and services demanded by other countries. This decrease in supply of dollars will cause the equilibrium Mexican peso-dollar exchange rate to increase, as there will be fewer dollars available to purchase Mexican pesos, resulting in a depreciation of the dollar and an appreciation of the peso.

Holding All Else Constant,a Decrease in Canada's Real GDP Will