Macro Unit 5, Question 6: Exchange Rate and Inflation

The video tutorial explains the market dynamics of the Mexican peso, focusing on how inflation in Mexico affects the demand and supply of pesos. It highlights that demand for pesos comes from other countries, while supply is from within Mexico. Due to inflation, demand decreases and supply increases, leading to a depreciation of the peso against the US dollar. The tutorial also provides insights into how test questions might address these economic concepts.

What is the primary focus of the initial discussion about the Mexican peso market?

• The role of the Mexican government in currency exchange

• The impact of tourism on the peso

• The demand and supply curves for pesos

• The historical value of the peso

How does higher inflation in Mexico affect the demand for pesos from other countries?

• It increases the demand for pesos

• It decreases the demand for pesos

• It stabilizes the demand for pesos

• It has no effect on the demand for pesos

What happens to the supply of pesos when inflation in Mexico rises?

• The supply of pesos increases

• The supply of pesos becomes unpredictable

• The supply of pesos decreases

• The supply of pesos remains unchanged

What is the overall effect on the exchange rate when both demand decreases and supply increases for pesos?

• The exchange rate becomes volatile

• The peso appreciates

• The exchange rate remains stable

• The peso depreciates

In the context of a test question, what is the key takeaway regarding changes in demand or supply?

• Both demand and supply changes lead to peso depreciation

• Only supply changes matter

• Only demand changes matter

• Neither demand nor supply changes affect the peso