10. Trade and labor mobility Suppose that the U.S. dollars-Mexican pesos exchang

Question

10. Trade and labor mobility

Suppose that the U.S. dollars-Mexican pesos exchange rate is fixed by the U.S. and Mexican governments. Assume also that labor is mobile between the United States and Mexico due to low transportation costs.

Which of the following situations is likely to happen as a result of a simultaneous increase in the demand for U.S. goods and decrease in the demand for Mexican goods? (pick one)-

--The Mexican unemployment rate increases, and the country undergoes bad economic times for a sustained period.

--The U.S. unemployment rate increases, and the country undergoes bad economic times for a sustained period.

--The Mexican unemployment rate rises at first, but it soon drops as unemployed Mexicans move to the United States for employment.

--The Mexican unemployment rate rises at first, but then it drops as Mexican pesos depreciate against U.S. dollars.

Explanation / Answer

--The Mexican unemployment rate rises at first, but it soon drops as unemployed Mexicans move to the United States for employment.

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.