Suppose an economic downturn in South Korea causes South Korean incomes to decre

Question

Suppose an economic downturn in South Korea causes South Korean incomes to decrease, while Russian 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. The decrease in South Korean incomes causes the South Korean won to relative to the Russian ruble and causes the Russian ruble to relative to the South Korean won. Suppose the price level in Russia rises by 10%, while the price level in South Korea remains the same. That is, the inflation rate in Russia is higher than in South Korea. Drag the appropriate curve or curves on the following graph to illustrate have this affects the market for South Korean won.

Explanation / Answer

Decrease in income in southkorean incomes causes the south korean won decrease relative to the russian ruble and causes the russian ruble to increase relative to the south korean won.

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