If Japan realizes technological improvements in the production of automobiles, which lowers its production costs relative to foreign producers, Japanese exports will rise, and the yen's exchange value will appreciate under a system of floating exchange rates.

Question

Quizplus · Accepted Answer

If Japanese exports rise, there will be an increase in demand for yen to pay for those exports, causing an appreciation of the yen's exchange value. This is consistent with the basic theory of floating exchange rates.

If Japan Realizes Technological Improvements in the Production of Automobiles