Assume that the exchange rate between the dollar and the yen is ¥60 = $1. Suppose the exchange rate changes to ¥100 = $1. Because of the change:
A)Australian exports should increase and Australian imports should increase.
B)Australian exports should decrease and Australian imports should increase.
C)Australian exports should increase and Australian imports should decrease.
D)Australian exports should decrease and Australian imports should decrease.

Question

Quizplus · Accepted Answer

The exchange rate change indicates the dollar has appreciated relative to the yen, making Japanese goods cheaper for Americans and American goods more expensive for the Japanese. This would generally lead to an increase in imports from Japan to the US (as Japanese goods become cheaper) and a decrease in exports from the US to Japan (as American goods become more expensive for Japanese consumers). However, the question incorrectly references Australia instead of the US or Japan, but the principle of how exchange rate changes affect imports and exports remains the same.

Assume That the Exchange Rate Between the Dollar and the Yen