Macroeconomics 19th Edition by Campbell McConnell , Stanley Brue,Sean Flynn

Exercise 3

Refer to following table, in which Qd is the quantity of yen demanded, P is the dollar price of yen, Qs is the quantity of yen supplied in year 1, and Qs ' is the quantity of yen supplied in year 2. All quantities are in billions and the dollar-yen exchange rate is fully flexible.

a. What is the equilibrium dollar price of yen in year 1?
b. What is the equilibrium dollar price of yen in year 2?
c. Did the yen appreciate or did it depreciate relative to the dollar between yearS₁ and 2?
d. Did the dollar appreciate or did it depreciate relative to the yen between yearS₁ and 2?
e. Which one of the following could have caused the change in relative values of the dollar and yen between yearS₁ and 2: (1) More rapid inflation in the United States than in Japan; (2) an increase in the real interest rate in the United States but not in Japan; or (3) faster growth of income in the United States than in Japan.