7. Explain why the U.S. demand for Mexican pesos is downsloping and the supply of pesos to Americans is upsloping.

Assuming a system of flexible exchange rates between Mexico and the United States, indicate whether each of the following would cause the Mexican peso to appreciate or depreciate, other things equal: LO41.3

a. The United States unilaterally reduces tariffs on Mexican products.

b. Mexico encounters severe inflation.

c. Deteriorating political relations reduce American tourism in Mexico.

d. The U.S. economy moves into a severe recession.

e. The United States engages in a high-interest-rate monetary policy.

f. Mexican products become more fashionable to U.S.

consumers.

g. The Mexican government encourages U.S. firms to invest in Mexican oil fields.

h. The rate of productivity growth in the United States diminishes sharply.