Hello! I have five fill in the blanks I am very puzzled with. Also with the kore

Question

Hello! I have five fill in the blanks I am very puzzled with. Also with the korean war, how will these two graphs shift? Thank youuu <3

The following questions focus on the exchange rate between the Russian ruble and the South Korean won. Assume the exchange rate is flexible. The exchange rate is defined as the number of rubles you must pay for one won Suppose an economic downturn in South Korea causes South Korean incomes to decrease, while Russian incomes remain unchanged Assuming asset returns in the two countries do not change as a result of their differing growth rates, shift the appropriate curve or curves on the following graph to ustrate how this affects the market for South Korean won 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 Supply of Won Demand for Won 2 Supply of Won CS Cr Demand for Won QUANTITY OF WON 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 that in South Korea Drag the appropriate curve or curves on the following graph to ustrate how this affects the market for South Korean won Supply ofvWon Demand for Won 2 Supply ofWon Demand for Won QUANTITY OF WON Suppose the real interest rates in Russia and South Korea are initially the same. Then the real interest rate in Russia falls, while the real interest rate in South Korea remains the same. This will cause the supply of won to causes the Russian ruble to and the demand for won to , which relative to the South Korean won

Explanation / Answer

The problem is related with exchange rate of two country Russia and South Kores. Currency of Russia is ruble. In South Korea it is Won. demand and supply curve of won is shown in the diagram. Exchang rate is number of rubles requred to get one unit won.

Here exchange rate is like the price of won. As you know, price of a commodity affects demand inversly and supply favorably. Same impact will be observed for currency. Consider first situation described in the problem. Income of Korean people has reduced. You know that less incomne will mean less buy power. So Korean people will now demand less units of commodities for consumption. Fall in domestic demand will mean less quantities will be imported from Russia. Korean importers require ruble to pay the exporter bills. These rubles are purchased by paying won. So increase in import increases supply of won in international market. Here just opposite will happen. Reduction in import will reduce supply of won in the international market. So supply curve of won will shift to the left. Now equilibrium (intersection of demand and supply curve) will move to the left at higher point. So exchange rate of rouble per won will rise. Thus more rouble is now required to be paid to get one won. In other words, rouble value will depreciate and won value will rise.

Answer: The decrease in South Korean income, causes south korean won to appreciate in value relative to Russian ruble and causes Russian rouble to depreciate relative to South korean won.

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In second situation, inflation rate in Russia has increased by 10%. So real income of the country has decreaed. Now less quantities can be bought by spending a ruble. Thus import from Russia will be costly now. Korean imporer after price rise has to pay more ruble to get one unit of commodity. Thus import from Rusia will drop. It will reduce supply of won in the international market. Just opposite will happen on the export front. Korean good are now relatively cheap. So russian importers will buy more goods from Korea.

Net effect is import to exceed more than export. Balance of trade is now adverse. To pay the excess Korean bill, Russia will demand more won from international market. So demand of won will move up. It will shift demand curve of won to the right. Thus intersection point of demand supply curve will shift to the right. exchange rate of russian ruble per unit of won will rise. So more ruble is reqired now to get a won. Thus ruble will depreciate and won value will appreciate.

Answer: Supply of won to decrease and demand of won to increase, which causes Russian ruble to depreciate relative to South Korean Won.

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