If prices rise in the United States, everything else constant, the dollar __________ against the yen and the yen __________ against the dollar.
A) appreciates; appreciates
B) appreciates; depreciates
C) depreciates; appreciates
D) depreciates; depreciates

Question

Quizplus · Accepted Answer

If prices rise in the United States, inflation occurs, which decreases the purchasing power of the dollar. Therefore, the demand for yen will increase due to the relative strength of yen, causing the dollar to depreciate against the yen. At the same time, the increased demand for yen will appreciate the yen against the dollar.

If Prices Rise in the United States, Everything Else Constant