Final answer:
The supply curve for dollars in the foreign-currency exchange market is vertical because the supply, which is influenced by a country's central bank policies (or monetary policies), is fixed in the short term and does not change with the exchange rate in an open economy. Factors such as predictions by major newspapers can shift the demand and supply curves, altering the equilibrium exchange rate.
Step-by-step explanation:
The supply curve for dollars in the foreign-currency exchange market is typically represented as vertical in an open economy because the supply of a country's currency is often linked to its central bank's monetary policy, which is typically designed to target certain economic indicators rather than respond directly to changes in the currency's exchange rate. In an open economy, the supply of dollars is not restricted by trade barriers and control measures, which means the level of dollars available for exchange is constant at any given exchange rate; therefore, the supply curve is vertical. Any shifts in the supply or demand, due to factors such as expectations about future exchange rates, inflation rates, interest rates, or economic growth, can lead to a change in the equilibrium exchange rate.
For example, if the Wall Street Journal or Financial Times predicts that the Mexican peso will appreciate, demand for pesos would increase, leading to a rightward shift in the demand curve and a leftward shift in the supply curve in the market for pesos. Such shifts can cause the equilibrium exchange rate to increase, as illustrated in various figures showing the demand and supply information from the perspective of the Mexican peso and trading for U.S. dollars.