Assume a system of floating exchange rates.Due to a high savings rate,suppose the level of savings in Japan is in excess of domestic investment needs.If Japanese residents invest abroad,the yen's exchange value will ____ and the Japanese trade balance will move toward ____.
A) Appreciate,deficit
B) Appreciate,surplus
C) Depreciate,deficit
D) Depreciate,surplus

Question

Quizplus · Accepted Answer

When Japanese residents invest abroad, they sell yen to buy foreign currency, leading to a depreciation of the yen. A weaker yen makes Japanese exports cheaper and imports more expensive, improving the trade balance towards a surplus.

Assume a System of Floating Exchange Rates