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 decrease in the demand for U.S. goods and increase in the demand for Mexican goods?
a. The U.S. unemployment rate rises at first, but it soon drops as unemployed Americans move to Mexico for employment.
b. The U.S. unemployment rate rises at first, but then it drops as U.S. dollars depreciate against Mexican pesos.
c. The U.S. unemployment rate increases, and the country undergoes bad economic times for a sustained period.
d. The Mexican unemployment rate increases, and the country undergoes bad economic times for a sustained period.