The nominal exchange rate (E) between the U.S. dollar and the Japanese yen is cu

Question

The nominal exchange rate (E) between the U.S. dollar and the Japanese yen is currently about 82 yen per dollar. If E goes from 82 to 72 over the next year, and the price levels in the two countries do not change, then which of the following is U.S. NX will increase as imports increase and exports decrease. U.S. NX will decrease as imports increase and exports decrease. U.S. NX will increase as imports decrease and exports increase. U.S. NX will decrease as imports increase and exports decrease.

Explanation / Answer

Ans is (C). E decreased from 82 to 72 demand for yen increases and hence exports of japan increases and NX Of japan will increase.

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