Case Number Three:

Part a: One Mark for Each Statement

For each of the following six scenarios, state whether the value of the dollar will appreciate, depreciate, or remain the same relative to the Japanese yen. Explain each answer. Assume that exchange rates are free to vary and that other factors are held constant.

1. The growth rate of national income is higher in the United States than in Japan.
2. Inflation is higher in the United States than in Japan.
3. Prices in Japan and the United States are rising at the same rate.
4. Real interest rates in the United States rise relative to real rates in Japan.
5. The United States imposes new restrictions on the ability of foreigners to buy American companies and real estate.
6. U.S. wages rise relative to Japanese wages, while American productivity falls behind Japanese productivity.
7. Japan exports to US is higher than US export to Japan.