Political turmoil substantially increased the risk premium

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Reference no: EM13771035

In August 1994, a Mexican peso was worth 30 cents. A year later, it was worth only 16 cents since the political turmoil substantially increased the risk premium on Mexican assets. Using the Mundell-Fleming model, which of the following statement is correct?

A. U.S. goods became expensive to Mexicans.

B. Mexican assets lost value and thus increased wealth of U.S. citizens.

C. The rise in risk premium shifts the IS curve to the right.

D. The rise in risk premium shifts the LM curve to the left.

Reference no: EM13771035

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