An increase in Mexican income decreases aggregate demand in the ...

[BrownTown3]

An increase in Mexican income decreases aggregate demand in the United States. Is the preceding statement correct or incorrect? Briefly explain your answer.
 
  What will be an ideal response?

Question 2

Why can exchange rates be very volatile?
 
  What will be an ideal response?

[fdliggud]

Answer to Question 1

The statement is incorrect. An increase in Mexican income means that Mexican citizens buy more goods and services exported from the United States. The increase in U.S. exports increases U.S. aggregate demand.

Answer to Question 2

Exchange rates can be volatile because in the foreign exchange market the factors that affect the supply also affect the demand and they reinforce each other. For instance, an increase in demand (which raises the exchange rate) often is accompanied by a decrease in the supply (which also raises the exchange rate). As a result, the exchange rate soars higher.

[BrownTown3]

Thank you

[fdliggud]

No problemo