If US prices start rising relative to prices in Japan, what would happen to the dollar vs. yen exchange rate?
If US prices start rising relative to prices in Japan, what would happen to the dollar vs. yen exchange rate?
Answer:
Prices in the US would rise either to:
Oversupply of the US Dollar, or
US price shock (or both).
The Yen would strengthen against the dollar in either scenario.
According to a standard open economy model like Mundell-Fleming to keep US exports competitive the US$ will have to depreciate to offset the higher price levels.
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Answer:
Prices in the US would rise either to:
Oversupply of the US Dollar, or
US price shock (or both).
The Yen would strengthen against the dollar in either scenario.
According to a standard open economy model like Mundell-Fleming to keep US exports competitive the US$ will have to depreciate to offset the higher price levels.
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