If the price level in Japan increases more rapidly than the price level in Britain, we...

If the price level in Japan increases more rapidly than the price level in Britain, we would expect

Select one:

Japanese productivity to have increased more rapidly than British productivity.

the British pound to depreciate against the Japanese yen.

the Japanese yen to depreciate against the British pound.

interest rates in Japan to be lower than interest rates in Britain.

Expert Solution

Ans. Option c

The real exchange rate between Japan and Britain = 1 = Nominal Exchange rate(Pound/ Yen) * [Price level in Japan/ Price level in Britain]

So, if the price level in Japan increases more rapidly than Britain's, the nominal exchange rate should decrease i.e. less Pound per unit Yen. So, this means that Yen will depriciate.

Rahul Sunny answered 2 years ago

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