Suppose That, in a System of Floating or Market-Determined Exchange

question 6

Multiple Choice

Suppose that, in a system of floating or market-determined exchange rates, the equilibrium exchange rate is 80 Japanese yen = $1. If there is then a change in preferences of U.S. consumers such that they now prefer more Japanese goods in their consumption bundle, then, other things equal, the equilibrium exchange rate __________, which is __________.

• A) will move toward a lower price for the dollar ; an appreciation of
• The yen relative to the dollar
• B) will move toward a lower price for the dollar ; an appreciation of
• The dollar relative to the yen
• C) will move toward a higher price for the dollar ; an appreciation of
• The yen relative to the dollar
• D) will move toward a higher price for the dollar ; an appreciation of
• The dollar relative to the yen

---

Definitions:

Equilibrium Quantity

The quantity of goods or services that is supplied and demanded at the point where the supply and demand curves intersect.

Diminishing Marginal Utility

The principle that says additional units of a good or service provide less added satisfaction than previous units.

Risk-Averse

describes an individual or entity that prefers to minimize risk, choosing options that are deemed safer or involve less uncertainty.

Insurance Premiums

Payments made to an insurance company in exchange for coverage against specified risks over a period.