Answer to Question #151782 in Finance for candy

Question

a. The U.S. economy is growing faster than that of Japan. The faster growth rate in the U.S. should cause the value of the dollar to depreciate against the yen, everything else being equal. Explain.

Answer 1

A weak exchange rate will make imports to be more expensive, therefore less demand for imports. Exports will become cheaper, therefore more demand for exported goods which in turn cause less demand for domestically produced goods.Overall, this reduces Aggregate Demand (AD)