Question

as the dollar price of a foreign currency (for example, dollars per yen) decreases, foreign goods will be ______ expensive, ____ foreign goods will be purchased, and ______ foreign currency will be demanded.

more; fewer; more
more; fewer; less
less; more; less
less; more; more

Explanation:

Analyze the effect of exchange rate on foreign goods prices

When the dollar price of a foreign currency (e.g., dollars per yen) decreases, the foreign currency depreciates relative to the dollar (or the dollar appreciates). This means it takes fewer dollars to buy the same amount of foreign currency. Consequently, foreign goods, which are priced in the foreign currency, become cheaper (less expensive) in terms of US dollars.

Determine the change in quantity of foreign goods purchased

Since foreign goods are now less expensive for domestic consumers, the law of demand dictates that domestic consumers will buy more of these foreign goods.

Determine the change in demand for foreign currency

To purchase more foreign goods, domestic consumers need to acquire more of the foreign currency to pay for them. Therefore, more foreign currency will be demanded in the foreign exchange market.

Answer:

• more; fewer; more
• more; fewer; less
• less; more; less
• less; more; more (Correct answer)