Question

Suppose there is a shift in the international market for Japanese cars. Order the following events to show how a shift in consumer preferences can affect exchange rates. Start by clicking the first item in the sequence or dragging it here Drag the items below into the box above in the correct order, starting with the first item in the sequence. The yen appreciates relative to the dollar. More dollars are exchanged for yen to pay Japanese suppliers. American consumers start to prefer Japanese cars to American cars. The shifting exchange rate drives up the price of Japanese cars in the United States.

Answer 1

A preference for Japanese cars leads to more dollars exchanged for yen, causing the yen to appreciate and, subsequently, increasing the cost of Japanese cars in the U.S. market.

Step-by-step explanation:

To understand how a shift in consumer preferences affects the exchange rates, let's organize the sequence of events:

1. American consumers start to prefer Japanese cars to American cars.
2. More dollars are exchanged for yen to pay Japanese suppliers.
3. The yen appreciates relative to the dollar.
4. The shifting exchange rate drives up the price of Japanese cars in the United States.

Initially, the demand for Japanese cars increased. This surge in demand leads to more dollars being converted into yen, as payments need to be made to Japanese suppliers. The increased demand for the yen drives up its value, leading to an appreciation of the yen relative to the dollar. Finally, because the yen is now stronger against the dollar, Japanese cars become more expensive in the U.S. market, potentially pushing consumers to reassess their choices.