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Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406

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Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406
Textbook Problem

Under a flexible exchange rate system, if the equilibrium exchange rate is 0.10 USD = 1 MXN and the current exchange rate is 0.12 = 1 MXN, will the U.S. dollar appreciate or depreciate? Explain.

To determine

Check whether the U.S. dollar appreciates or depreciates.

Explanation

When the equilibrium exchange rate is 0.10 dollar equal to 1 peso and the exchange rate increases as 0.12 dollars equal to 1 peso, then American people will have to pay 12 cents instead of 10 cents. This means that the dollar depreciates in relation to peso.

On the other hand, fewer pesos are needed to exchange dollar...

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