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Key Concept: Exchange rate changes In the foreign exchange market, where Japanese Yen and United States dollars are traded, which of the following would cause the supply of dollars curve to shift to the right? a. Japanese imports become less popular. b. The value of the dollar falls. c. The supply of dollars decreases. d. Japanese imports become more popular.

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Economics For Today

10th Edition
Tucker
Publisher: Cengage Learning
ISBN: 9781337613040

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BuyFindarrow_forward

Economics For Today

10th Edition
Tucker
Publisher: Cengage Learning
ISBN: 9781337613040
Chapter P8, Problem 2KC
Textbook Problem
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Key Concept: Exchange rate changes

In the foreign exchange market, where Japanese Yen and United States dollars are traded, which of the following would cause the supply of dollars curve to shift to the right?

  1. a. Japanese imports become less popular.
  2. b. The value of the dollar falls.
  3. c. The supply of dollars decreases.
  4. d. Japanese imports become more popular.

To determine

Cause for the rightward shift in the supply of the US dollar.

Explanation of Solution

The foreign exchange market is a market where the currencies of different countries are bought and sold. The exchange rate is a rate at which a domestic currency is being exchanged with a foreign currency. The exchange rate is being calculated on the basis of the demand for the foreign currency and the supply of the foreign currency.

Option (d):

When the Japanese products become more popular in the US economy, the consumers in the US will demand more of the Japanese products. As a result of higher demand and higher imports of the Japanese products, the US economy has to pay the Japanese economy. This increases the demand for Yen in the market and as a result, US economy will supply more dollars to get Yen in return. Thus, it causes the rightward shift in the supply of dollars in the economy. This means that option 'd' is correct.

Option (a):

When the Japanese imports become less popular, people in US will demand less of the imported products and this reduces the payout of the US economy to the imports from Japan...

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