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5. Changes in the foreign exchange market The following questions focus on the exchange rate between the euro and the South Korean won. Assume the exchange rate is flexible. The exchange rate is defined as the number of euros you must pay for one won. Suppose an economic expansion in South Korea causes South Korean incomes to rise, while European incomes remain unchanged. Shift the appropriate curve or curves on the following graph to illustrate how this affects the market for South Korean won if all other things remain equal. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. EUROS PER WON QUANTITY OF WON Supply of Won Demand for Won The increase in South Korean incomes causes the South Korean won to relative to the South Korean won. EUROS PER WON Depreciate/Appreciate QUANTITY OF WON Demand for Won Supply of Won Demand for Won 1 Depreciate/Appreciate Suppose the price level in South Korea rises by 5%, while the price level in the eurozone remains the same. That is, the inflation rate in South Korea is higher than in the eurozone. Supply of Won Shift the appropriate curve or curves on the following graph to illustrate how this affects the market for South Korean won. (?) Depreciate/Appreciate relative to the euro and causes the euro to Demand for Won Supply of Won Suppose the real Interest rates in the eurozone and South Korea are Initially the same. Then the real interest rate in the eurozone falls, while the real. interest rate in South Korea remains the same. This will cause the supply of won to and the demand for won to , which causes the euro to relative to the South Korean won. increase/decrease increase/decrease

5. Changes in the foreign exchange market The following questions focus on the exchange rate between the euro and the South Korean won. Assume the exchange rate is flexible. The exchange rate is defined as the number of euros you must pay for one won. Suppose an economic expansion in South Korea causes South Korean incomes to rise, while European incomes remain unchanged. Shift the appropriate curve or curves on the following graph to illustrate how this affects the market for South Korean won if all other things remain equal. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. EUROS PER WON QUANTITY OF WON Supply of Won Demand for Won The increase in South Korean incomes causes the South Korean won to relative to the South Korean won. EUROS PER WON Depreciate/Appreciate QUANTITY OF WON Demand for Won Supply of Won Demand for Won 1 Depreciate/Appreciate Suppose the price level in South Korea rises by 5%, while the price level in the eurozone remains the same. That is, the inflation rate in South Korea is higher than in the eurozone. Supply of Won Shift the appropriate curve or curves on the following graph to illustrate how this affects the market for South Korean won. (?) Depreciate/Appreciate relative to the euro and causes the euro to Demand for Won Supply of Won Suppose the real Interest rates in the eurozone and South Korea are Initially the same. Then the real interest rate in the eurozone falls, while the real. interest rate in South Korea remains the same. This will cause the supply of won to and the demand for won to , which causes the euro to relative to the South Korean won. increase/decrease increase/decrease

Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
8th Edition
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter32: A Macroeconomic Theory Of The Open Economy
Section: Chapter Questions
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5. Changes in the foreign exchange market The following questions focus on the exchange rate between the euro and the South Korean won. Assume the exchange rate is flexible. The exchange rate is defined as the number of euros you must pay for one won. Suppose an economic expansion in South Korea causes South Korean incomes to rise, while European incomes remain unchanged. Shift the appropriate curve or curves on the following graph to illustrate how this affects the market for South Korean won if all other things remain equal. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back. to its original position, just drag it a little farther. EUROS PER WON Supply of Won Demand for Won QUANTITY OF WON The increase in South Korean incomes causes the South Korean won to relative to the South Korean won. EUROS PER WON Depreciate/Appreciate Supply of Won Demand for Won Depreciate/Appreciate Suppose the price level in South Korea rises by 5%, while the price level in the eurozone remains the same. That is, the inflation rate in South Korea is higher than in the eurozone. Demand for Won QUANTITY OF WON Supply of Won Shift the appropriate curve or curves on the following graph to illustrate how this affects the market for South Korean won. (? Depreciate/Appreciate relative to the euro and causes the euro to Demand for Won Supply of Won (?) Suppose the real Interest rates in the eurozone and South Korea are Initially the same. Then the real Interest rate in the eurozone falls, while the real interest rate in South Korea remains the same. This will cause the supply of won to and the demand for won to , which causes the euro to relative to the South Korean won. increase/decrease increase/decrease
Transcribed Image Text:5. Changes in the foreign exchange market The following questions focus on the exchange rate between the euro and the South Korean won. Assume the exchange rate is flexible. The exchange rate is defined as the number of euros you must pay for one won. Suppose an economic expansion in South Korea causes South Korean incomes to rise, while European incomes remain unchanged. Shift the appropriate curve or curves on the following graph to illustrate how this affects the market for South Korean won if all other things remain equal. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back. to its original position, just drag it a little farther. EUROS PER WON Supply of Won Demand for Won QUANTITY OF WON The increase in South Korean incomes causes the South Korean won to relative to the South Korean won. EUROS PER WON Depreciate/Appreciate Supply of Won Demand for Won Depreciate/Appreciate Suppose the price level in South Korea rises by 5%, while the price level in the eurozone remains the same. That is, the inflation rate in South Korea is higher than in the eurozone. Demand for Won QUANTITY OF WON Supply of Won Shift the appropriate curve or curves on the following graph to illustrate how this affects the market for South Korean won. (? Depreciate/Appreciate relative to the euro and causes the euro to Demand for Won Supply of Won (?) Suppose the real Interest rates in the eurozone and South Korea are Initially the same. Then the real Interest rate in the eurozone falls, while the real interest rate in South Korea remains the same. This will cause the supply of won to and the demand for won to , which causes the euro to relative to the South Korean won. increase/decrease increase/decrease
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