Suppose that U.S. prices are increasing and everything else has remained constant then:
A) the dollar/peso exchange rate will appreciate caused by an increase in the demand for pesos.
B) the dollar/peso exchange rate will depreciate caused by an increase in the demand for pesos.
C) the dollar/peso exchange rate will appreciate caused by an increase in the supply of pesos.
D) the dollar/peso exchange rate will depreciate caused by an increase in the supply of pesos.
E) the dollar/peso exchange rate will be changed by the central bank.

Question

Quizplus · Accepted Answer

When U.S. prices are increasing, American goods become more expensive relative to foreign goods. This leads to an increase in demand for foreign currencies (in this case, pesos) to buy relatively cheaper foreign goods, causing the dollar to depreciate against the peso.

Suppose That U