lectur2-page1 - expensive for Americans to buy. Now a...

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Above you see a time-series of foreign exchange rates for the U.S. dollar and the Japanese yen. In 1986, $1 was equivalent to 240 yen. In 1988, the dollar was equivalent to 120 yen. Between 1986 and 1988, economists say that the dollar “weakened” relative to the yen. In 1986, the dollar was said to be very “strong” relative to the yen. In 1986, you could buy more “Japanese car or truck for your buck” than you could in 1988, 1994, 1995, or 1996. This does not only apply to Japanese cars and trucks, but to any commodity imported into this country from Japan When the dollar “strengthens” relative to another foreign currency imports Japan. When the dollar strengthens relative to another foreign currency, imports from that country are “cheaper” for Americans to buy. When the dollar “weakens” relative to another country’s currency, imports from that country become more
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Unformatted text preview: expensive for Americans to buy. Now a little history. In 1986, the dollar was very strong relative to the yen. Japanese motor vehicles were pretty cheap for U S consumers relative to American made motor vehicles were pretty cheap for U.S. consumers relative to American made motor vehicles. The CEOs from the big three U.S. auto-makers called then President Reagan for a meeting. At this meeting, the CEOs asked Reagan to intervene in the foreign currency markets to weaken the dollar. This would cause Japanese auto prices to U.S. consumers to increase. The theory was to make Japanese imports more expensive so that Americans would buy more Ford, General Motors, and Chrysler products. The U.S. auto-makers allegedly told the President 1 that this action would allow them to regain market share from the Japanese and improve the health of the U.S. auto industry....
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