📚 Learning Guide
Impact of Currency Appreciation
easy

If the Yen appreciates significantly, what is the most likely underlying cause for a decrease in Japan's net exports?

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Choose the Best Answer

A

Japanese goods become more expensive for foreign buyers

B

More foreign investors are purchasing Japanese products

C

The Japanese government is subsidizing exports

D

Increased demand for Yen in global markets

Understanding the Answer

Let's break down why this is correct

Answer

When the Yen appreciates, it means that the value of the Yen increases compared to other currencies. This makes Japanese goods more expensive for people in other countries. For example, if a car made in Japan costs 1,000,000 Yen, and the exchange rate changes so that it now costs more in dollars or euros, buyers in those countries might choose to buy cheaper cars from elsewhere instead. As a result, Japan's exports may decrease because fewer people want to buy expensive Japanese products. This decrease in exports can lead to a drop in Japan's net exports, which is the difference between what it sells to other countries and what it buys from them.

Detailed Explanation

When the Yen gets stronger, it means that foreign buyers need to spend more of their own money to buy Japanese goods. Other options are incorrect because This answer suggests that more foreign buyers are interested in Japanese goods; This option implies that the government is helping to lower prices for exports.

Key Concepts

Currency Appreciation
Net Exports
Balance of Payments
Topic

Impact of Currency Appreciation

Difficulty

easy level question

Cognitive Level

understand

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