Refer to the Diagram

question 4

Multiple Choice

Refer to the diagram. The initial demand for and supply of pesos are shown by D₁ and S₁. Suppose the United States reduces its imports of Mexican goods, shifting its demand for pesos from D₁ to D₂. Under a system of freely floating exchange rates,

• A)gold would flow from Mexico to the United States.
• B)the dollar price of pesos would fall from B dollars equals 1 peso to A dollars equals 1 peso.
• C)a problem of rationing a shortage of pesos would arise in the United States.
• D)the dollar price of pesos would increase to C dollars equals 1 peso.

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Definitions:

Sales to Customers

The transactions where goods or services are sold and delivered to the buyer, generating revenue for the company.

Accounts Payable

The amounts owed by a company to its suppliers or creditors for goods or services received but not yet paid for.

Cash Inflows

Money received by a business from various sources, including sales, investments, financing, etc.