Answer to Question #89097 in Macroeconomics for Mike Fyahley

Question

1) Assuming a system of floating exchange rates between Japan and Australia, indicate whether each of the following would cause the Japanese yen and the AUD to appreciate or depreciate.
a. Australia unilaterally reduces tariffs on Japanese products.
b. Japan encounters severe inflation.
c. Deteriorating political relations reduce Japanese tourism in Australia.
d. The Australian government invites Japanese firms to invest in oil fields in Australia.
e. The rate of productivity growth in Australia diminishes sharply. (5 marks)

Answer 1

a)     The Yen appreciates while the AUD depreciates.

b)     Yen depreciates while AUD appreciates.

c)     Yen appreciates while AUD depreciates.

d)     AUD appreciates while Yen depreciates.

e)     AUD depreciates while Yen appreciates.