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Chapter 29: Problem 11

A 2017 Dow Jones Newswire article about Toyota noted, "The company has long been committed to building at least three million vehicles a year in Japan, in part out of a desire to provide jobs in the country.... That was an easier decision when a dollar bought 120 yen two years ago." a. Does the article imply that in 2017 it took more than 120 yen to exchange for a dollar or fewer than 120 yen? Briefly explain. b. Given your answer to part (a), why would Toyota's decision to produce 3 million cars in Japan have been easier two years before this article was written?

Short Answer

Expert verified
a) The 2017 article implies that it took more than 120 yen to exchange for a dollar. b) It would have been easier for Toyota to take the decision on producing 3 million cars in Japan when the yen was stronger (went further against the dollar in exchange) because costs of production in Japan, likely to be in yen, would translate into fewer dollars.

Step by step solution

01

Understanding passage

From the article, 'That was an easier decision when a dollar bought 120 yen two years ago,' it can be deduced that in 2017 it took more than 120 yen to exchange for a dollar. This is because it states that it was easier when a dollar could be exchanged for 120 yen, implying that such is no longer the case.
02

Implications on Toyota's decision

Concerning why Toyota's decision to produce 3 million cars in Japan might have been easier two years ago can be reasoned as follows: If it now takes more yen to exchange for a dollar, the yen has weakened against the dollar. This means that the production costs, which are likely incurred in yen, are now more expensive when converted into dollars. Thus, it was easier to decide to produce in Japan when the yen was stronger (i.e. when fewer yen could be exchanged for a dollar).

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Most popular questions from this chapter

Briefly explain whether you agree with the following statement: "Because in 2016 national saving was a larger percentage of GDP in the United States than in the United Kingdom, domestic investment must also have been a larger percentage of GDP in the United States than in the United Kingdom."

Former member of Congress and presidential candidate Richard Gephardt once proposed that tariffs be imposed on imports from countries with which the United States has a trade deficit. If this proposal were enacted and if it were to succeed in reducing the U.S. current account deficit to zero, what would be the likely effect on domestic investment spending within the United States? Assume that no other federal government economic policy is changed. (Hint: Use the saving and investment equation to answer this question.)

Suppose that the current exchange rate between the dollar and the euro is \(€ 0.85=\$ 1 .\) If the exchange rate changes to \(€ 0.90=\$ 1\), has the euro appreciated or depreciated against the dollar? Briefly explain.

(Related to Solved Problem 29.1 on page 1034 ) An editorial in the Wall Street Journal in 2017 made the following observation: "When the U.S. has a current- account deficit it has to have a capital-account surplus of the same amount." Briefly explain whether you agree with this observation.

(Related to the Don't Let This Happen to You on page 1033) In 2016, Germany had a balance of trade surplus of \(€ 253\) billion and a current account surplus of \(€ 266\) billion. Explain how Germany's current account surplus could be larger than its trade surplus. In \(2016,\) what would we expect Germany's balance on the financial account to have been? Briefly explain.
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