Assume that General Motors employs labor and materials, whose costs are denominated in dollars, in the production of automobiles.If the dollar's exchange value appreciates by 10 percent against the yen, the yen-denominated cost of a GM vehicle falls by 10 percent.

Question

Quizplus · Accepted Answer

When the dollar appreciates against the yen, it means that each dollar can be exchanged for more yen. Therefore, the yen-denominated cost of a GM vehicle, which is originally priced in dollars, will decrease by the same percentage as the appreciation, assuming no other changes in pricing or costs.

Assume That General Motors Employs Labor and Materials, Whose Costs