The following question focuses on the exchange rate between U.S. dollars and Jap

Question

The following question focuses on the exchange rate between U.S. dollars and Japanese yen, defined as the number of U.S. dollars you must pay to obtain one yen Suppose that preferences for goods made in Japan change in the United States, causing U.S. consumers to purchase fewer goods and services made in Japan Drag the appropriate curve(s) on the following graph to illustrate how this change affects the market for yen Supply of yen Demand for yen Supply of yen NUMBER OF YEN A change in preferences that causes U.S. consumers to buy fewer Japanese-made goods and services will cause the U.S. dollar to appreciate relative to the yen

Explanation / Answer

When the U.S. consumers buy Japanese-made goods, then the demand for Yen increases because in order to make purchases in Japan, dollar has to be sold and converted to Yen. Now when they are shying away from buying Japanese-made products then dollars are not sold and demand for Yen decreases. So your answer is correct. When demand for Yen decreases, U.S. dollar will appreciate relative to Yen.

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