Because of the United States' long-standing trade deficit with Japan, the supply of U.S. dollars in Japan has increased. Which of the following is true about this situation?
A. The trade deficit will continue to increase in size as Japan gains more U.S. dollars and economic strength.
B. We cannot say anything for sure about the trade deficit other than that it exists.
C. The value of the U.S. dollar will decrease in terms of the yen, ceteris paribus, thereby reducing the trade deficit.
D. Trade restrictions on Japanese imported goods are ultimately the only way to reduce the trade deficit.
Answer: C
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