If the Japanese price level falls relative to the price level in the United States, then:

Question

Quizplus · Accepted Answer

If the Japanese price level falls relative to the price level in the United States, then Japanese goods will become cheaper relative to US goods. This will lead to an increase in demand for Japanese goods and a decrease in demand for US goods. As a result, the demand for dollars will decrease and the supply of dollars will increase. This will lead to a fall in the value of the dollar.

If the Japanese Price Level Falls Relative to the Price