Other Things Equal, If Exchange Rates Are Flexible, and If

question 31

Multiple Choice

Other things equal, if exchange rates are flexible, and if U.S. consumers increase their demand for Japanese goods at the same time that Japanese consumers increase their demand for U.S. goods, then we would expect the dollar to

• A) appreciate relative to the yen.
• B) depreciate relative to the yen.
• C) remain unchanged in value relative to the yen.
• D) appreciate, depreciate, or remain unchanged in value relative to the yen - impossible To determine without more information.

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Definitions:

Risk Averse

A description of individuals or entities that prefer to avoid risk and seek safer, more predictable outcomes.

Fundamental Analysis

A method of evaluating a security to measure its intrinsic value by examining economic, financial, and other qualitative and quantitative factors.

Rule of 70

A method to estimate the number of years it will take for a variable to double, by dividing 70 by the annual growth rate of the variable.

Interest Rate

The percentage of a sum of money charged for its use, reflecting the cost of borrowing or the return on saving.