When the Mexican government changes the fixed rate of pesos per U.S. dollar from 1.5 to 3.0, the peso is _____. When the equilibrium exchange rate of U.S. dollars per euro changes from 1.15 to 1.30, the euro is _____.

Question

Quizplus · Accepted Answer

When the fixed rate of pesos per U.S. dollar is changed from 1.5 to 3.0, it means that the value of peso has decreased. This is because it now takes more pesos to buy one U.S. dollar. This is a devaluation of the peso. When the equilibrium exchange rate of U.S. dollars per euro changes from 1.15 to 1.30, it means that the value of euro has increased. This is because it now takes more U.S. dollars to buy one euro. This is an appreciation of the euro. However, the question is asking for the correct choice for both scenarios, and only choice C correctly identifies the outcomes for both.

When the Mexican Government Changes the Fixed Rate of Pesos