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In 1994, Mexico suffered from a severe crisis after their currency, the peso, collapsed. Suppose that initially, in the market for dollars, the peso price of the dollar was Ps 3.4425. Believing that Mexico might be on the verge of collapse, speculators began shorting the peso. Essentially, speculators borrowed pesos and then sold pesos for dollars in the open market. Below, use supply and demand graphs in the market for dollars to depict the effects of the speculators activities. Suppose that as a result of their actions the dollar price of the peso ended up being either Peso 5 or Peso 2 (only one of these is correct). Label your graph and please specifically discuss which curve(s) shifted and why.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M971943

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