Let the exchange rate be defined as the number of Japanese Yen per dollar. Assume there is a decrease in U.S. inflation relative to that of Japan.
a. Would this event cause the demand for the dollar to increase or decrease relative to the demand for the Japanese yen? Why?
b. Has the dollar appreciated or depreciated in value relative to the Japanese yen?
c. Does this change in the value of the dollar make imports cheaper or more expensive for Americans? Are American exports cheaper or more expensive for importers of U.S. goods in Japan?