Trade and labor mobility
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 increase in the demand for U.S. goods and decrease in the demand for Mexican goods? (pick one)-
--The Mexican unemployment rate increases, and the country undergoes bad economic times for a sustained period.
--The U.S. unemployment rate increases, and the country undergoes bad economic times for a sustained period.
--The Mexican unemployment rate rises at first, but it soon drops as unemployed Mexicans move to the United States for employment.
--The Mexican unemployment rate rises at first, but then it drops as Mexican pesos depreciate against U.S. dollars.