AP Macroeconomics Question 346: Answer and Explanation

Test Information

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Question: 346

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

Explanation:

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.