AP Macroeconomics Question 346: Answer and Explanation
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5. Suppose the Japanese economy is suffering a prolonged recession. Lower Japanese household incomes will affect U.S. exports to Japan, demand for the dollar, and the value of the dollar relative to the yen in which of the following ways?
EXPORTS TO JAPAN DEMAND FOR $ VALUE OF $
- A. Decrease Decrease Decrease
- B. Decrease Decrease Increase
- C. Decrease Increase Decrease
- D. Increase Decrease Decrease
- E. Increase Decrease Increase
Correct Answer: A
A-When relative incomes are falling in Japan, fewer U.S. goods are demanded, so U.S. exports fall. The decrease in the demand for U.S. dollars causes the dollar to depreciate.