The Figure Given Below Depicts the Equilibrium Exchange Rate Between

question 124

Multiple Choice

The figure given below depicts the equilibrium exchange rate between the U.S dollar and the Mexican peso.
Figure 13.2

-Refer to Figure 13.2. Assume that the exchange rate is fixed at MXP 11 = $1 and the free market equilibrium rate is MXP 10 = $1. This means that at MXP 11 = $1,

• A) there will be a permanent shortage of U.S. dollars.
• B) there will be a surplus of Mexican pesos.
• C) there will be a permanent surplus of U.S. dollars.
• D) U.S. net exports to Mexico will be positive.
• E) the U.S. budget deficit will fall.

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