In the 1990s, the price level in Japan fell relative to the price level in the United States. If the exchange rate did not change, one would expect that:
A)U.S. exports to Japan would rise and U.S. imports from Japan would decline.
B)U.S. exports to Japan would decline and U.S. imports from Japan would rise.
C)both U.S. exports to Japan and U.S. imports from Japan would rise.
D)both U.S. exports to Japan and U.S. imports from Japan would fall.

Question

Quizplus · Accepted Answer

When the price level falls in Japan relative to the United States and the exchange rate remains unchanged, Japanese goods become cheaper for both Japanese and American consumers. As a result, Americans would buy more Japanese goods, increasing U.S. imports from Japan. Conversely, American goods become relatively more expensive for Japanese consumers, leading to a decline in U.S. exports to Japan.

In the 1990s, the Price Level in Japan Fell Relative