The following question are based on the following graph, showing the market for pesos. Mexico and the United States are engaged in a system of flexible exchange rates.

-If more people in the United States decide to purchase Mexican goods,the exchange rate (in terms of the dollar to the peso)
A) rises because demand increases.
B) falls because demand increases.
C) falls because demand decreases.
D) rises because demand decreases.
E) falls because supply decreases.

Question

The following question are based on the following graph, showing the market for pesos. Mexico and the United States are engaged in a system of flexible exchange rates.
 
-If more people in the United States decide to purchase Mexican goods,the exchange rate (in terms of the dollar to the peso)
A) rises because demand increases. 
B) falls because demand increases. 
C) falls because demand decreases. 
D) rises because demand decreases. 
E) falls because supply decreases.

Quizplus · Accepted Answer

If more people in the United States decide to purchase Mexican goods, this will increase the demand for pesos. This is because US consumers will need to exchange dollars for pesos in order to purchase the Mexican goods. As a result of the increased demand for pesos, the exchange rate (in terms of the dollar to the peso) will rise, meaning that it will take more dollars to purchase each peso. Therefore, the correct answer is A).

The Following Question Are Based on the Following Graph, Showing