Question Description
((TCO G) Let the exchange rate be defined as the number of dollars per
Japanese yen. Assume that there is a decrease in U.S. interest rates
relative to that of Japan.
(Part A) Would this event cause the demand for the dollar to increase or
decrease relative to the demand for the yen? Why?
(Part B) Has the dollar appreciated or depreciated in value relative to the yen?
(Part C) Does this change in the value of the dollar make imports
cheaper or more expensive for Americans? Are American exports cheaper or
more expensive for importers of U.S. goods in Japan? Illustrate by
showing the price of a U.S. wind energy turbine in Japan before and
after the change in the exchange rate.
(Part D) If you had a business exporting goods to Japan, and U.S.
interest rates fell as they have in this example, would you plan to
expand production or cut back? Why?
