If Japan adopts an expansionary monetary policy, the value of the dollar would:
A)decrease and the U.S. trade deficit would decrease.
B)decrease and the U.S. trade deficit would increase.
C)increase and the U.S. trade deficit would decrease.
D)increase and the U.S. trade deficit would increase.

Question

Quizplus · Accepted Answer

An expansionary monetary policy in Japan would decrease the value of the yen relative to the dollar, making the dollar stronger (increase in value). This would make Japanese goods cheaper for Americans and American goods more expensive for Japanese, potentially reducing the U.S. trade deficit as U.S. imports from Japan increase and exports decrease.

If Japan Adopts an Expansionary Monetary Policy, the Value of the Dollar