a)
The effect on the nominal peso- country U dollar exchange rate
a)
Explanation of Solution
Due to the discovery of oil reserves and their exporting to country U,
Therefore, Peso and dollar exchange rates will
Foreign Exchange rate: The rate at which currencies of two different countries are exchanged. In other words, it is the rate at which one currency is exchanged with the other currency.
b)
The effect on Mexican exports of other goods and services.
b)
Explanation of Solution
As Peso has risen in value, this will result in a decrease in Mexican exports (except oil) because it would become costly to buy goods from Mexico due to the value of its currency increasing.
Foreign Exchange rate: The rate at which currencies of two different countries are exchanged. In other words, it is the rate at which one currency is exchanged with the other currency.
c)
The effect on Mexican imports of other goods and services.
c)
Explanation of Solution
Due to Peso increasing in value, this will result in more imports by Mexico because the
Foreign Exchange rate: The rate at which currencies of two different countries are exchanged. In other words, it is the rate at which one currency is exchanged with the other currency.
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Chapter 42 Solutions
Krugman's Economics For The Ap® Course
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