Trade and labor mobility
Suppose that the U.S. dollars-Brazilian reais exchange rate is flexible and is determined by the forces of demand for and supply of the two currencies. Assume also that labor is immobile between the United States and Brazil due to high 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 Brazilian goods?
A. The Brazilian unemployment rate increases, and the country undergoes bad economic times for a sustained period.
B. The U.S. unemployment rate increases, and the country undergoes bad economic times for a sustained period.
C. The Brazilian unemployment rate rises at first, but then it drops as the Brazilian reais depreciate against U.S. dollars.
D. The Brazilian unemployment rate rises at first, but it soon drops as unemployed Brazilians move to the United States for employment.