Question

In 1982, the government devalues the______ three times, resulting in higher ______ and depressing ______. a) Peso, inflation, exports b) Dollar, unemployment, imports c) Euro, interest rates, investments d) Yen, trade deficit, industrial production

Answer 1

In 1982, the government devalues the peso three times, resulting in higher inflation and depressing exports. Option a is correct.

Step-by-step explanation:

In 1982, the government undertakes three devaluations of the peso, leading to increased inflation and a decline in export activity. This statement reflecting the currency devaluation and its consequences implies that as the value of the peso fell, inflation rose which eroded its buying power, making the country's exports less competitive.

As mentioned in the provided information, if a country experiences a relatively high inflation rate compared to other economies, the currency's buying power is eroded. Such inflation deters investors from acquiring or holding that currency.

In the case of Mexico during 1986-87, this led to a decrease in demand and an increase in supply for the peso, causing it to depreciate, shown by the shift in equilibrium exchange rate from $2.50 per peso to $0.50 per peso in the foreign exchange markets.

Hence, option a is correct.