In: Economics
Mexico currently has an annual inflation rate of about 20 percent and the U.S. has an annual inflation rate of 3 percent. According to the monetary model, what will happen to the value of the peso? If the Mexican real output is growing at 6 percent per year how can the Central Bank of Mexico keep the value of the peso form changing? Explain
The economy of Mexico is a developing market economy.It is the 16th largest in the world in nominal terms and the 11th largest by purchasing power parity, according to the International Monetary Fund.Since the 1994 crisis, administrations have improved the country's macroeconomic fundamentals. Mexico was not significantly influenced by the 2002 South American crisis, and maintained positive, although low, rates of growth after a brief period of stagnation in 2001. However, Mexico was one of the Latin American nations most affected by the 2008 recession with its Gross Domestic Product contracting by more than 6% in that year.
Mexico’s gross domestic product (GDP) has been increasing
slightly over the last decade, however, its national debt still
amounts to almost half of its GDP. The majority of Mexico’s GDP is
yielded by the services sector, as a look at the distribution of
gross domestic product in Mexico by sector shows. More than 60
percent of GDP are generated in this sector; the majority of the
Mexican workforce is employed in services. One important
contributor to Mexico’s GDP is tourism. The total unemployment rate
in Mexico took a turn for the worse during the recession of 2008
and is still to bounce back to previous levels.
Mexico’s main export and import partner is the United States which
accounts for approximately half of the value of both. Thus, the
trade balance of goods in Mexico, showing the value of exports
minus the value of imports, is heavily dependant on the United
States. For the past decade, Mexico’s trade balance has run at a
deficit of more than 10 billion US dollars. The trade balance of
services sector in Mexico has also been in the red with a deficit
of more than 6 percent since the recession and higher than 9
percent since 2011.Mexico’s gross domestic product (GDP) has been
increasing slightly over the last decade, however, its national
debt still amounts to almost half of its GDP. The majority of
Mexico’s GDP is yielded by the services sector, as a look at the
distribution of gross domestic product in Mexico by sector shows.
More than 60 percent of GDP are generated in this sector; the
majority of the Mexican workforce is employed in services. One
important contributor to Mexico’s GDP is tourism. The total
unemployment rate in Mexico took a turn for the worse during the
recession of 2008 and is still to bounce back to previous
levels.
Mexico’s main export and import partner is the United States which
accounts for approximately half of the value of both. Thus, the
trade balance of goods in Mexico, showing the value of exports
minus the value of imports, is heavily dependant on the United
States. For the past decade, Mexico’s trade balance has run at a
deficit of more than 10 billion US dollars. The trade balance of
services sector in Mexico has also been in the red with a deficit
of more than 6 percent since the recession and higher than 9
percent since 2011.
Mexico is also one of the largest drug exporting countries worldwide. Specific trade figures are not available, however, Mexico is among the top countries for opium cultivation based on acreage, and thousands of illegal poppy fields, processed into opium, have been destroyed in Mexico year after year.
Inflation rate compared to year 2001-2021 i.e. shown below :-