Suppose that Mexico decides to depreciate its peso.Which of the following will most likely occur?

Question

Quizplus · Accepted Answer

When Mexico depreciates its peso, the value of its currency falls relative to that of other currencies, making its exports cheaper and more attractive to foreign buyers. As a result, Mexican businesses in export-oriented industries benefit because they can sell more products and services to other countries. On the other hand, businesses that rely on imports will face higher costs because they will need to use more pesos to buy the same amount of foreign goods. This can lead to higher prices for consumers and hurt Mexican businesses that rely on imported inputs. Therefore, choice D is the best answer. Option A is incorrect because all industries may not benefit equally from the depreciation, depending on their dependence on imports and exports. Option B is correct, as US goods become cheaper in Mexico, making them more price-competitive. But it is not the best answer since it only answers half of the question. Option C is incorrect because the depreciation will impact wages and prices in Mexico, leading to changes in inflation and purchasing power.

Suppose That Mexico Decides to Depreciate Its Peso