Using a separate supply and demand diagram for each part, illustrate the effect of the price of the yen in terms of dollars of each of the following (hint: you will have the dollar price of the yen on the vertical axis0:
a. Lower Japanese price level
b. Fast Japanese economic growth
c. High Japanese interest rates
d. Expectation that the yen will depreciate.
a. Exchange rates equal price levels across countries. A lower price level in Japan will therefore increase the exchange rate, ie it will take more dollars to get the same number of yen. The low price level makes Japanese goods attractive the Americans. They purchase yen to buy them, which shifts the demand curve outward. ...
The solution determines the effect of the price of the yen in terms of dollars.