Assume that Japan and the United States are engaged in a system of flexible exchange rates. Refer to the graph above. If more people in the United States decide to purchase Japanese cars, what effect will this have on the market for yen?

Question

Assume that Japan and the United States are engaged in a system of flexible exchange rates.  Refer to the graph above. If more people in the United States decide to purchase Japanese cars, what effect will this have on the market for yen?

Quizplus · Accepted Answer

An increase in demand for Japanese cars from the United States will lead to an increase in demand for yen to pay for these cars. This increased demand for yen will cause the price of yen to increase in the foreign exchange market. Therefore, choice A is correct. The other choices are incorrect as they refer to the supply of yen, which is not impacted by the increase in demand for Japanese cars from the United States.

Assume That Japan and the United States Are Engaged in a System