Refer to Figure 7-2. With the tariff in place, the United States consumes

Refer to the diagram. The initial demand for and supply of pesos are shown by D 1 and S 1 . Suppose the United States reduces its imports of Mexican goods, shifting its demand for pesos from D 1 to D 2 . Under a system of freely floating exchange rates:

A.  gold would flow from Mexico to the United States.
B.  the peso price of dollars would rise from B pesos equals $1 to A pesos equals $1.
C.  a problem of rationing a shortage of pesos would arise in the United States.
D.  the dollar price of pesos would increase to C dollars equals 1 peso.

Which of the following would be most likely to encourage capital formation in a less-developed country?

A. the expectation of sustained high inflation B. the expectation that property rights will be highly secure in the years ahead C. the imposition of high tariffs and other restraints limiting imports D. higher personal and corporate tax rates