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Chapter 18: Q2QT (page 638)

Question: Why is a weaker yen good for the profits of Japanese auto companies?

Short Answer

Expert verified

Weaker yen increases the export; thus, good for Japanese auto companies.

Step by step solution

01

Explanation

When the yen is weak compared to other countries, importing goods from Japan will be cheaper for the other country. As Japan’s export is cheap, sales for the auto company increases. As the sale of auto companies increases, the profit for the company also increases. Thus, the weaker yen is good for the Japanese auto companies.

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Most popular questions from this chapter

Question: Look at the data in Figure 18-8. Where do you see devaluations and revaluations of the franc against the mark?

Question: In the late 1980s Canadian economists argued that the high interest rate policies of the Bank of Canada weren't just causing high unemployment—they were also making it hard for Canadian manufacturers to compete with the United States. Explain this complaint, using our analysis of how monetary policy works under floating exchange rates.

Mexico discovers huge reserves of oil and starts exporting oil to the United States. Describe how this would affect the following.

  1. The nominal peso–U.S. dollar exchange rate
  2. Mexican exports to the United States of other goods and services
  3. Mexican imports from the United States of goods and services

A basket of goods and services costs \(100 in the United States costs 800 pesos in Mexico, and the current nominal exchange rate is 10 pesos per U.S. dollar. Over the next five years, the cost of that market basket rises to \)120 in the United States and 1,200 pesos in Mexico, although the nominal exchange rate remains at 10 pesos per U.S. dollar. Calculate the following.

a. The real exchange rate now and five years from now, if ' 'today's price index in both countries is 100

b. Purchasing power parity today and five years from now

Which of the balance of payments accounts do the following events affect?

a. Boeing, a U.S.-based company, sells a newly built airplane to China.

b. Chinese investors buy stock in Boeing from American residents.

c. A Chinese company buys a used airplane from American Airlines and ships it to China.

d. A Chinese investor who owns property in the United States buys a corporate jet, which he will keep in the United States so he can travel around America.
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