Answer :
Let's analyze the given scenario and options step-by-step.
When we say that "the US dollar has appreciated relative to the Mexican Peso," it means that the US dollar has increased in value compared to the Mexican Peso. In other words, one US dollar can now be exchanged for more Mexican Pesos than before.
Let's break down the implications of this appreciation:
1. For the US Dollar:
- In the United States: The value of the US dollar remains the same domestically since the appreciation is relative to the Mexican Peso. Therefore, this does not affect the purchasing power of the dollar within the US.
- In Mexico: Since the dollar has appreciated against the Peso, one dollar can be exchanged for more Pesos. This means that with the same amount of dollars, you can buy more goods and services in Mexico than before.
2. For the Mexican Peso:
- In the United States: Because the Peso has depreciated relative to the dollar, one Peso can be exchanged for fewer dollars. This means that the purchasing power of the Peso in the US is lower; you can buy fewer goods and services in the US with the same amount of Pesos.
Now let's review the given options:
a) The dollar will buy less in the United States and less in Mexico:
- This is incorrect. The value of the dollar has appreciated relative to the Peso, so it should buy more in Mexico.
b) The dollar will buy more in the United States and less in Mexico:
- This is not correct because the dollar's purchasing power in the United States remains unchanged.
c) The dollar will buy more in Mexico than the Peso will buy in the United States:
- This is correct. Since the dollar has appreciated, it has more purchasing power in Mexico, and since the Peso has depreciated, it has less purchasing power in the United States.
d) The dollar will buy less in Mexico than the Peso will buy in the United States:
- This is incorrect because with the appreciation, the dollar should buy more in Mexico.
Therefore, the correct answer is:
c) The dollar will buy more in Mexico than the Peso will buy in the United States.
When we say that "the US dollar has appreciated relative to the Mexican Peso," it means that the US dollar has increased in value compared to the Mexican Peso. In other words, one US dollar can now be exchanged for more Mexican Pesos than before.
Let's break down the implications of this appreciation:
1. For the US Dollar:
- In the United States: The value of the US dollar remains the same domestically since the appreciation is relative to the Mexican Peso. Therefore, this does not affect the purchasing power of the dollar within the US.
- In Mexico: Since the dollar has appreciated against the Peso, one dollar can be exchanged for more Pesos. This means that with the same amount of dollars, you can buy more goods and services in Mexico than before.
2. For the Mexican Peso:
- In the United States: Because the Peso has depreciated relative to the dollar, one Peso can be exchanged for fewer dollars. This means that the purchasing power of the Peso in the US is lower; you can buy fewer goods and services in the US with the same amount of Pesos.
Now let's review the given options:
a) The dollar will buy less in the United States and less in Mexico:
- This is incorrect. The value of the dollar has appreciated relative to the Peso, so it should buy more in Mexico.
b) The dollar will buy more in the United States and less in Mexico:
- This is not correct because the dollar's purchasing power in the United States remains unchanged.
c) The dollar will buy more in Mexico than the Peso will buy in the United States:
- This is correct. Since the dollar has appreciated, it has more purchasing power in Mexico, and since the Peso has depreciated, it has less purchasing power in the United States.
d) The dollar will buy less in Mexico than the Peso will buy in the United States:
- This is incorrect because with the appreciation, the dollar should buy more in Mexico.
Therefore, the correct answer is:
c) The dollar will buy more in Mexico than the Peso will buy in the United States.
