. Equilibrium changes in the foreign exchange market

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.

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.

Demand for WonSupply of WonRUBLES PRICE OF WONQUANTITY OF WONDemand for WonSupply 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 in South Korea.

Drag the appropriate curve or curves on the following graph to illustrate how this affects the market for South Korean won.

Demand for WonSupply of WonRUBLES PRICE OF WONQUANTITY OF WONDemand for WonSupply 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 and the demand for won to