The government just released international exchange rate statistics and reported that the real effective exchange rate index for the U.S. dollar vs. the Japanese yen decreased from 105 last year to 95 currently and is expected to fall still further in the coming year. Other things equal, U.S. ________ to/from Japan think this is good news, and U.S. ________ to/from Japan think this is bad news.

Question

The government just released international exchange rate statistics and reported that the real effective exchange rate index for the U.S. dollar vs. the Japanese yen decreased from 105 last year to 95 currently and is expected to fall still further in the coming year. Other things equal, U.S. ________ to/from Japan think this is good news, and U.S. ________ to/from Japan think this is bad news.

BlackTom AI · Accepted Answer

Question restatement: The government reports that the real effective exchange rate index for the U.S. dollar versus the Japanese yen fell from 105 last year to 95 now and is expected to fall further. With all else equal, which groups in the U.S. think this is good news or bad news for trade with Japan?

Option A: A. exporters; exporters
This option claims both perspectives (good and bad) belong to exporters. If the dollar strengthens against the yen (or if the yen strengthens against the dollar), U.S. exporters might gain or lose depending on relative costs and demand, but the given scenario is a depreciation of the dollar (real effective rate down). In that situation, U.S. exporters typically benefit because U.S. goods become cheaper for foreign buyers when the domestic currency weakens. Labeling both good news and bad news as exporters is inconsistent with the logic of a depreciating dollar, so this option is not coherent with the described exchange-rate movement.

Option B: B. importers; importers
This choice says both the good news and bad news come from importers. A weaker dollar makes imports from Japan more expensive in U.S. dollars, which should be bad news for U.S. importers, not good news. It also fails to assign the corresponding opposite view to the counterpart group, making this option internally inconsistent given the stated currency movement.

Option C: C. importers; exporters
Here, importers would see the news as good, while exporters would see it as bad. But with a depreciating dollar (USD weaker vs JPY), U.S. imports become more expensive and U.S. goods become cheaper for foreigners. That means importers would generally view the depreciation as bad news, and exporters would view it as good news. This option reverses the intuitive, economically consistent pairing, so it is incorrect.

Option D: D. exporters; importers
This option correctly assigns the outcomes: a weaker dollar relative to the yen makes U.S. products cheaper for foreign buyers (Japan), benefiting U.S. exporters, while it raises the cost of Japanese goods and other imports for U.S. consumers and firms, hurting importers. The real-effective exchange-rate decline signals a depreciation of the dollar, which aligns with exporters viewing the news positively and importers negatively. This option aligns with standard open-economy theory on exchange-rate movements and trade balance effects.

In sum, given the dollar’s real effective depreciation against the yen, the logical distribution is that U.S. exporters see good news, whereas U.S. importers see bad news. Other options fail to align with this fundamental consequence of a weaker domestic currency on trade participants.

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