(Transcript of audio with descriptions. Transcript includes narrator headings and description headings of the visual content)
(Speaker)
In this chapter, you were introduced to exchange rates and factors that causes a country's exchange rate to increase or decrease. For this question, you will be asked to analyze the effects of four different events on the US Japan exchange rate.
(Description)
The following text is briefly written:
Suppose the United States and Japan are the only two trading countries in the world. What will happen to the value of the U.S. dollar if the following occur, other things equal?
(Speaker)
For part A, you were asked to determine the effects on the exchange rate when Japan relaxes some of its import restrictions.
(Description)
The following text is briefly written below the previous one:
If Japan relaxes some of its import restrictions then the dollar will (appreciate, depreciate), blank line.
(Speaker)
Before answering the question, it is worth reviewing the basic demand and supply graph seen here.
(Description)
The coordinate plane with the horizontal x-axis and the vertical y-axis is drawn. The horizontal axis is labeled as Quantity of U.S. dollars. The vertical axis is labeled as Exchange rate measured in yen per U.S. dollar.
A straight line sloping downward from the left upper corner to the right lower corner of the graph is drawn. It is labeled as D.
Another straight line sloping upwards from the left lower corner to the right upper corner of the of the graph is drawn. It is labeled as S.
Point, XR subscript 1, is briefly labeled on the vertical axis. A dotted horizontal line extending from point, XR subscript 1, intersects with the second dotted line extending from some point on the x-axis at the intersection point of lines, D, and, S.
(Speaker)
In this particular graph, we are looking at the demand and supply of US dollars and the exchange rate is measured as yen per US dollar.
As the exchange rate increases, it will take more yet to purchase one US dollar, which implies the dollar has appreciated.
Suppose we start with en initial exchange rate of 100, which means it takes 100 yen to purchase one US dollar.
(Description)
Now, point, XR subscript 1, labeled as XR subscript 1 equals 100.
(Speaker)
Now suppose the exchange rate increases to 120. So it takes 120 yen to purchase one US dollar. If it takes more yen to buy one US dollar, then the dollar has appreciated.
(Description)
The following text is briefly written to the left of the horizontal axis:
U.S. dollar appreciates. An up arrow is briefly drawn to the right of this text.
(Speaker)
Suppose now the exchange rate decreases to 80 yen per US dollar. In this case, it takes fewer yen to buy one dollar. The price of the dollar has decreased, which means the US dollar has depreciated relative to the yen.
(Description)
The following text is briefly written to the left of the horizontal axis:
U.S. dollar depreciates. A down arrow is briefly drawn to the right of this text.
(Speaker)
Now we should be able to analyze the impact of Japan relaxing some of its import restrictions. If Japan relaxes import restrictions, Japanese residents will demand more US goods, and more US dollars to buy those goods. The US dollar will appreciate due to the increase in the demand for US dollars.
(Description)
The line, D, shifts upwards while retaining the same slope. This new line is labeled as D subscript 2. The line, D, is now labeled as D subscript 1.
A point, XR subscript 2, is labeled on the vertical axis, so that the value of, XR subscript 2, is larger than the value of, XR subscript 1. An up arrow next to points, XR subscript 1, and, XR subscript 2, is drawn. A dotted line parallel to the horizontal axis, extending from point, XR subscript 2, intersects with lines, D subscript 2, and, S, at their intersection point.
The intersection point of lines, D subscript 2, and, S, is shifted to the up and right with respect to the intersection point of lines, D subscript 1, and, S.
Two right arrows between lines, D subscript 1, and, D subscript 2, are drawn.