10 Trade and labor mobility Suppose that the US dollarsMexic

10. Trade and labor mobility Suppose that the U.S. dollars-Mexican pesos exchange rate is fixed by the U.S. and Mexican governments. Assume also that labor is mobile between the United States and Mexico due to low transportation costs Which of the following situations is likely to happen as a result of a simultaneous increase in the demand for U.S. goods and decrease in the demand for Mexican goods? O The Mexican unemployment rate rises at first, but it soon drops as unemployed Mexicans move to the United States for employment. O The U.S. unemployment rate increases, and the country undergoes bad economic times for a sustained period O The Mexican unemployment rate increases, and the country undergoes bad economic times for a sustained period. O The Mexican unemployment rate rises at first, but then it drops as Mexican pesos depreciate against U.S. dollars

Solution

Ans

A IS absolutely right. Less demand for Mexican commodities results in less production and unemployment. Exchange rate does not fall which will have otherwise increased Mexican exports. Labour move to usa to get better employment and life