Other things equal, if exchange rates are flexible, and if U.S. consumers increase their demand for Japanese goods at the same time that Japanese consumers increase their demand for U.S. goods, then we would expect the dollar to

Question

Quizplus · Accepted Answer

When both U.S. consumers increase their demand for Japanese goods and Japanese consumers increase their demand for U.S. goods simultaneously, the effects on the exchange rate between the dollar and the yen could offset each other. The net effect on the exchange rate would depend on the relative sizes of these changes in demand, among other factors, making it impossible to determine the direction of the exchange rate movement without more information.

Other Things Equal, If Exchange Rates Are Flexible, and If