Under a flexible exchange rate system,if the rate of inflation in the United States exceeds that in Japan
A) the Japanese yen will appreciate relative to the dollar.
B) the dollar will be devalued.
C) gold will flow from Japan to the United States.
D) the U.S. demand for yen will shift to the left.
E) the exchange rate will remain the same, but exports and imports will fall.

Question

Quizplus · Accepted Answer

Under a flexible exchange rate system, a higher rate of inflation in one country will lead to a depreciation of its currency relative to the other country with a lower rate of inflation. In this case, if the rate of inflation in the United States exceeds that in Japan, the demand for Japanese yen will increase relative to the US dollar, causing the yen to appreciate.

Under a Flexible Exchange Rate System,if the Rate of Inflation