Question

2. Manufacturers response to currency appreciation From 1996 to 2002, the U.S. dollar appreciated by 22% on average against the currencies of major U.S. trading partners. Assuming that the yen and dollar prices in Japan and the United States did not change, Japanese products became 22% than U.S. products for Japanese consumers. Which of the following describe the U.S. manufacturers’ best strategic responses to the currency appreciation? Check all that apply. Begin importing foreign-made parts Shift production from high-value products to commodity-type goods Sell manufacturing bases abroad to cover production costs at home Shift production from commodity-type goods to high-value products

Answer 1

Answer: a. Cheaper

b. Shift production from commodity-type goods to high-value products.;

Begin importing foreign-made parts

Explanation:

1. Japanese products became 22% cheaper than U.S. products.

The US Dollar became 22% stronger than the Japanese Yen meaning that the US Dollar can now buy 22% more Yen than before. If a good is priced in Yen then this means that the USD can buy 22% more of that good than before meaning that the good is 22% cheaper now.

2. Commodity goods are essentially raw or semi processed foods. Because the USD has become stronger, importing these goods instead of producing them would reduce the cost of production if they were to start processing said goods and making them High Value products so this is what they should do.

The USD is now stronger against major trading Partners. Like earlier mentioned, this means that the USD can buy 22% more goods as a result. Companies should therefore import parts that they need because they'll be able to buy 22% more of those parts thereby reducing their cost of Production.