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If the Japanese Yen Were to Change from 100 Yen per Dollar

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A) If the Japanese yen were to change from 100 yen per dollar to 90 yen per dollar, would the U.S. balance of payments be likely to "improve" (become more positive) or not? In answering, consider what effect the exchange rate change would have both on U.S. exports and imports to and from Japan and on purchase decisions made by manufacturers or importers located in other countries.

b) Assume that the U.S. and Europe are both initially in an economic recession and that the U.S. begins to recover before Europe. What would you expect to happen to trade? What would you expect to happen to the U.S. dollar - Euro ($/Euro) exchange rate? Why?

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Solution Preview

1. If the Japanese yen were to change from 100 yen per dollar to 90 yen per dollar, imports from Japan into the US will be negatively affected (decreased). This is because the decrease in exchange rate has made Japan merchandise ...

Solution Summary

The solution provides detailed explanations and answer for the exchange problem.

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