-In the figure above, suppose the economy is initially at point B. Then the interest rate in Japan rises relative to the interest rate in the United States. This change ________ the supply of dollars and the market moves to a point such as ________.
A) decreases; A
B) decreases; E
C) increases; D
D) increases; C

Question

-In the figure above, suppose the economy is initially at point B. Then the interest rate in Japan rises relative to the interest rate in the United States. This change ________ the supply of dollars and the market moves to a point such as ________.
A) decreases; A 
B) decreases; E 
C) increases; D 
D) increases; C

Quizplus · Accepted Answer

When the interest rate in Japan rises relative to the interest rate in the United States, investors and savers find Japanese assets more attractive, leading to an increase in the demand for yen and a corresponding increase in the supply of dollars as investors sell dollars to buy yen. This shift moves the market to a point where the value of the dollar decreases relative to the yen, such as point C, indicating a depreciation of the dollar.

-In the Figure Above, Suppose the Economy Is Initially at Point