The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.Figure 22.2

-Suppose a hefty rise in the demand for Mexican pesos creates a chronic shortage of this currency in the foreign exchange market. Which of the following steps should be adopted by the Mexican government to eliminate this shortage?
A)The government should impose a ban on Mexican exports.
B)The government should devalue the peso.
C)The government should print more pesos to increase its supply.
D)The government should allow the peso to appreciate.
E)The government should allow the peso to depreciate.

Question

The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.Figure 22.2
 
-Suppose a hefty rise in the demand for Mexican pesos creates a chronic shortage of this currency in the foreign exchange market. Which of the following steps should be adopted by the Mexican government to eliminate this shortage?
A)The government should impose a ban on Mexican exports. 
B)The government should devalue the peso. 
C)The government should print more pesos to increase its supply. 
D)The government should allow the peso to appreciate. 
E)The government should allow the peso to depreciate.

Quizplus · Accepted Answer

Allowing the peso to appreciate would make Mexican goods more expensive to foreigners, thus reducing the demand for pesos, which can help eliminate the chronic shortage by balancing the demand with the available supply.

The Figure Given Below Depicts the Foreign Exchange Market for British