Suppose the U.S.price level rises 25 percent at a time when Japan experiences stable prices.As a result,the U.S.demand for Japanese goods will __________,and the Japanese demand for U.S.goods will __________; in turn,this will increase the demand for Japanese yen and decrease the supply of Japanese yen; in turn,the dollar will depreciate and the yen will appreciate.

Question

Quizplus · Accepted Answer

When the U.S. price level rises, U.S. goods become more expensive relative to Japanese goods, leading to an increase in U.S. demand for Japanese goods and a decrease in Japanese demand for U.S. goods. This increases the demand for yen and decreases its supply, causing the dollar to depreciate and the yen to appreciate.