Refer to the Diagram

question 82

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. If the United States and Mexico were both on the international gold standard,

• A)gold would flow from Mexico to the United States.
• B)the exchange rate would rise from B dollars equals 1 peso to C dollars equals 1 peso.
• C)gold would flow from the United States to Mexico.
• D)the exchange rate would fall from B dollars equals 1 peso to A dollars equals 1 peso.

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