Question

The value of US exports to Japan is $1000, the value of Japan's exports to the...

The value of US exports to Japan is $1000, the value of Japan's exports to the US is $1500, and the dollar sells for 100 Yen/$.

1. What's the US current account ?

2. If the $ sell for __ the US current account will ______, ceteris paribus.

Q2 1st blank80 Yen/120 Yen 2nd blank increase or not change or decline

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Answer #1

1) US current Account = US Exports to Japan–Japan's Exports to US= $1000–$1500= $500.

US Current Account is in Deficit by $500.

2) If $1 sells for 80 Yen, US current account will not Change, ceteris paribus.

If $1 sells for 120 Yen, US current account will not Change, ceteris paribus.

This will be because whatever the Exchange Rate Between Dollar and Yen, the value US Exports will remain smaller than Value of its imports irrespective of the Currency we measure them in.

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