Question

Assume the U.S. dollar and the Mexican peso are traded in flexible currency markets. Which of the following would cause the U.S. dollar to depreciate relative to the Mexican peso? Higher price level in Mexico relative to the United States. Higher interest rates in the United States relative to Mexico. Higher incomes in Mexico relative to the United States. Increasing price level in the United States relative to Mexico. Decreasing price level in the United States relative to Mexico.

Answer 1

Increasing price level in the United States relative to Mexico.

Step-by-step explanation:

When the price level of a country increases, the goods it produces become more expensive to foreign consumers. This will decrease the demand for domestic goods from foreign buyers, which will result in a depreciation of the domestic currency against foreign currencies.

In this case, if the price level in the US increases, the US dollar will depreciate against the Mexican peso.