Answer to Question #219477 in Microeconomics for richman

Question

The recent commitment of most automotive brands to the electric vehicle market has led to an increase in global demand for semiconductor chips. Assuming that Japan is the only semiconductor supplier in the world, and the central bank adopts tight monetary policy to fight against inflation due to the rising inflation, determine what will happen to the demand for yen, the supply of yen and the exchange rate of yen to the dollar in the foreign exchange market.

Explain your answer.

Answer 1

The inventory of cash is controlled by the homegrown interest for imports from abroad. The more it imports the more prominent the stockpile of Yen onto the unfamiliar trade market. The inventory bend of unfamiliar trade slants upwards because of the positive connection between the stockpile for unfamiliar trade and the unfamiliar swapping scale, which implies that the stock of unfamiliar trade increments as the conversion standard increments. 

For instance, When the cost of unfamiliar money falls, imports from that far off country become less expensive. Thus, imports increment and subsequently, the interest for unfamiliar cash rises. For instance, if the cost of 1 US dollar tumbles from 50 Yen to 45 Yen, then, at that point imports from the USA will increment as American merchandise will turn out to be somewhat less expensive.