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:

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.

Explanation:

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

Peso appreciate

b. Mexico encounters severe inflation

Peso depreciate

c. Deteriorating political relations reduce American tourism in Mexico.

Peso depreciate

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

Peso appreciate

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

Peso depreciate

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

Peso depreciate

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

Peso appreciate

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

Peso appreciate

answer; ///deficit;

answer; ///blank(1) 75%; blank(2) 40%;