If the rate of inflation in Japan dramatically increases while the rate of inflation in the United States remains constant, then
A) the demand curve for dollars shifts to the left.
B) the demand curve for dollars shifts to the right.
C) the demand curve for yen shifts to the right.
D) the demand curves for both yen and dollars remain constant.

Question

Quizplus · Accepted Answer

If the rate of inflation in Japan increases, Japanese goods and services will become relatively more expensive compared to goods and services in the United States. This will lead to a decrease in demand for Japanese goods and services, and thus a decrease in demand for the yen. As a result, the demand curve for dollars (which is the same as the supply curve for yen) will shift to the right, reflecting an increase in demand for dollars.

If the Rate of Inflation in Japan Dramatically Increases While