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    Question

    Suppose the money supply in Mexico grows more quickly

    than the money supply in the USA. We would expect that
    A The Mexican peso should appreciate relative to the US dollar Correct Answer Incorrect Answer
    B the Mexican peso should depreciate relative to the US dollar Correct Answer Incorrect Answer
    C none of these answers Correct Answer Incorrect Answer
    D the Mexican peso should maintain a constant exchange rate with the US dollar because of purchasing power parity Correct Answer Incorrect Answer

    Solution

    The Mexican peso should depreciate relative to the US dollar when the money supply in Mexico grows more quickly than money supply in USA.

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