Suppose that prices in Japan increase by 8 percent while prices in the United States remain stable.We would expect that the result would be that in the foreign exchange market ___________________________,ceteris paribus.

Question

Suppose that prices in Japan increase by 8 percent while prices in the United States remain stable.We would expect that the result would be that in the foreign exchange market ___________________________,​ceteris paribus​.

Quizplus · Accepted Answer

When prices in Japan increase relative to prices in the United States, the value of the yen relative to the dollar decreases because it now takes more yen to buy the same amount of goods. This leads to the dollar appreciating and the yen depreciating in the foreign exchange market, assuming all other factors remain constant (ceteris paribus).

Suppose That Prices in Japan Increase by 8 Percent While