Question 22

AD increases

A depreciation of Japan's yen typically leads to an increase in aggregate demand (AD). This is because a weaker yen makes Japanese exports cheaper for foreign buyers, thereby boosting export activity and increasing overall demand in the economy.

A) Import more, export less

This option is incorrect because a depreciation of the yen generally makes imports more expensive, leading to a decrease in imports rather than an increase. Consequently, exports become more competitive internationally, which contradicts the assertion of exporting less.

B) AD increases

This option is correct as a weaker yen enhances the competitiveness of Japan's exports, leading to an increase in aggregate demand. The increase in foreign demand for Japanese goods and services contributes positively to AD.

C) Current-account deficit rises

This option is incorrect because a depreciation of the yen typically results in an improvement in the current account. As exports rise due to the lower prices for foreign buyers, the current account balance may improve rather than worsen.

D) Price level falls

This option is inaccurate since a depreciation of the yen can lead to higher import prices, which may increase the overall price level rather than decrease it. Hence, the price level is more likely to rise, not fall.

Conclusion

The correct answer, "AD increases," accurately reflects the economic impact of yen depreciation, as it fosters greater export activity and stimulates aggregate demand. The other options fail to align with economic principles, either misrepresenting the effects on imports and exports or misunderstanding the current account balance and price levels.