Question

If the rate of inflation in Japan dramatically increases while the rate of inflation in the United States remains constant, then a. the demand curve for dollars shifts to the left. b. the demand curve for yen shifts to the right. c. the demand curves for both yen and dollars remain constant. d. the demand curve for dollars shifts to the right.

Answer 1

a

Step-by-step explanation:

Inflation is a persistent rise in the general price levels

Types of inflation

1. demand pull inflation – this occurs when demand exceeds supply. When demand exceeds supply, prices rise

2. cost push inflation – this occurs when the cost of production increases. This leads to a reduction in supply. Higher prices are the resultant effect

When inflation increases , the value of currency falls

As a result of the inflation, the value of japans currency would fall.

As a result, it would become more expensive to purchase dollars by those in japan. Thus the demand for dollar would reduce and it would shift to the left