Suppose that U.S. income is falling and everything else has remained constant then:
A) the dollar/yen exchange rate will appreciate caused by a decrease in the demand for yen.
B) the dollar/yen exchange rate will depreciate caused by a decrease in the demand for yen.
C) the dollar/yen exchange rate will appreciate caused by a decrease in the supply of yen.
D) the dollar/yen exchange rate will depreciate caused by a decrease in the supply of yen.
E) the dollar/yen exchange rate will not change.

Question

Quizplus · Accepted Answer

When U.S. income falls, Americans will buy fewer imported goods, including those from Japan, leading to a decrease in the demand for yen. This decrease in demand for yen, with everything else constant, causes the dollar to appreciate relative to the yen.

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