The figure given below depicts the demand and supply of Brazilian reals in the foreign exchange market.Assume that the market operates under a flexible exchange rate regime. Figure 21.1 In the figure: D₁ and D₂: Demand for Brazilian reals S₁ and S₂: Supply of Brazilian reals Refer to Figure 21.1.If the initial equilibrium exchange rate is 6 pesos per real, then other things equal, a decrease in the number of Brazilian tourists to Mexico would: A)increase the demand for Brazilian reals from D₂ to D₁ and increase the exchange rate to 8 pesos per real. B)decrease the supply of Brazilian reals from S₁ to S₂ and increase the exchange rate to 8 pesos per real. C)decrease the supply of Brazilian reals from S₁ to S₂ and increase the exchange rate to 10 pesos per real. D)decrease the demand for Brazilian reals from D₁ to D₂ and increase the exchange rate to 8 pesos per real. E)decrease the supply of Brazilian reals from S₁ to S₂ and increase the demand for Brazilian reals from D₂ to D₁, thereby changing the exchanging rate to 10 pesos per real.

Question

Quizplus · Accepted Answer

A decrease in the number of Brazilian tourists to Mexico would decrease the supply of Brazilian reals, shifting the supply curve leftward from S₁ to S₂. This would cause the exchange rate to increase from 6 pesos per real to a new equilibrium rate, likely to be higher than 6 pesos per real. The demand curve would not shift in this case. Therefore, the correct answer is B.

The Figure Given Below Depicts the Demand and Supply of Brazilian