-Refer to the above figure. Suppose E is the original equilibrium. An increase in the demand for dollars will be reflected in this figure by
A) an increase in the demand for yen as both imports and exports increase.
B) a decrease in the demand for yen as the U.S. balance of payments improves.
C) an increase in the supply of yen as Japan tries to buy more U.S. goods.
D) a decrease in the supply of yen as Japan is able to pay less for U.S. goods.

Question

-Refer to the above figure. Suppose E is the original equilibrium. An increase in the demand for dollars will be reflected in this figure by
A) an increase in the demand for yen as both imports and exports increase. 
B) a decrease in the demand for yen as the U.S. balance of payments improves. 
C) an increase in the supply of yen as Japan tries to buy more U.S. goods. 
D) a decrease in the supply of yen as Japan is able to pay less for U.S. goods.

Quizplus · Accepted Answer

An increase in the demand for dollars typically means that more people or entities want to buy U.S. goods, services, or assets. This would lead to an increase in the supply of yen in the foreign exchange market, as Japanese entities convert yen to dollars to make these purchases, reflecting choice C.

-Refer to the Above Figure