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"'One USDollar Is Worth Eighteen Mexican Pesos

Question 168

Multiple Choice

"'One U.S.dollar is worth eighteen Mexican pesos.' That statement is part of microeconomics,because we are talking about the cost in pesos of a single good,namely a dollar." Why is this reasoning INCORRECT?


A) An exchange of dollars for pesos is,implicitly,an exchange across international borders.Any such exchange is by definition macroeconomic.
B) What makes the statement about dollars and pesos microeconomic is the fact that individual consumers can perform currency exchange transactions.
C) Mexico and the United States,together with Canada,form a single trade zone,within which exchange rates between currencies are not micro- (or macro-) economically significant.
D) A dollar is not a "single good" in the required sense.It is a medium by which goods-all goods-are exchanged,and so changes in exchange rates between the dollar and other currencies affect the prices of all goods.
E) Microeconomics is about incomes,outputs,employment,and prices.Since an exchange rate does not fall under any of those topics,it is not part of microeconomics.

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