A decrease in the price level in the United States relative to the price level in Mexico causes an appreciation of the dollar against the peso.

Question

Quizplus · Accepted Answer

A decrease in the price level in the United States relative to the price level in Mexico would make U.S. goods and services relatively cheaper compared to Mexican goods and services. Therefore, demand for U.S. goods and services would increase, leading to an increase in demand for dollars to purchase those goods and services. This increased demand for dollars would cause the value of the dollar to appreciate against the peso.

A Decrease in the Price Level in the United States