Suppose that prices in the United States rise relative to prices in Japan.We expect that

Question

Quizplus · Accepted Answer

If prices in the US rise relative to prices in Japan, then goods and services in the US become relatively more expensive, causing a decrease in demand for them, and a decrease in the value of the dollar. Conversely, goods and services in Japan become relatively cheaper, leading to an increase in demand for them, and an increase in the value of the yen. Therefore, the dollar is expected to depreciate, and the yen is expected to appreciate. Thus, Option B is the correct answer.

Suppose That Prices in the United States Rise Relative to Prices