It is noticed that both investment transactions and trade transactions between the U.S. and Mexico are...

It is noticed that both investment transactions and trade transactions between the U.S. and Mexico are large. Assuming Mexican inflation rate decreases relative to that in the U.S..

(a) Explain how the change of Mexican inflation rate affects the balance of trade of Mexico and equilibrium exchange rate of Mexican pesos.

(b) Using your answers in part (a), explain how the price competitiveness of Mexican products be affected given similar substitutes are available in the U.S.

Expert Solution

Rahul Sunny answered 2 years ago

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