Thread: Macro-Economics questions

I was able to answer all the other questions in the assignment, but these last two (edited) are really puzzeling me and I don't know where else to turn to, please help me out.


- The Canadian demand for Mexican Pesos is downward sloping and supply of Pesos is upward sloping. Assume a system of flexible exchange rate between Mexico and Canada, graphically illustrate and explain how each of the following would affect market value of Mexican Pesos.
a. Mexico encounters sever recession
b. the Mexico government encourages foreign investment in Mexico by tax policies.

- Explain the reason behind the upward sloping short run supply and vertical long run supply. What effects each of the following have on equilibrium output and price?
a. An increase of the aggregate supply and a decrease in aggregate demand
b. An equal increase in both aggregate supply and demand

Thank you for any answers or advice you can give me, it is very much appreciated.

Originally Posted by threesix

I was able to answer all the other questions in the assignment, but these last two (edited) are really puzzeling me and I don't know where else to turn to, please help me out.


- The Canadian demand for Mexican Pesos is downward sloping and supply of Pesos is upward sloping. Assume a system of flexible exchange rate between Mexico and Canada, graphically illustrate and explain how each of the following would affect market value of Mexican Pesos.
a. Mexico encounters sever recession
b. the Mexico government encourages foreign investment in Mexico by tax policies.

- Explain the reason behind the upward sloping short run supply and vertical long run supply. What effects each of the following have on equilibrium output and price?
a. An increase of the aggregate supply and a decrease in aggregate demand
b. An equal increase in both aggregate supply and demand

Thank you for any answers or advice you can give me, it is very much appreciated.

If Mexico experiences a recession then we would expect the demand for Pesos to shift left. In other words, Canadians would demand less Pesos. This could be because Mexico is a less attractive business location or that Canadians no longer want to investment in the Mexican stock market.

A supportive tax policy would shift demand right. This is for reasons opposite to that of a recession.