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5) This question considers how the FX market will respond to changes in monetary policy in South Korea. For these questions, define the exchange rate as South Korean won per Japanese yen, Ewon/ Use the FX and money market diagrams to answer the following questions. On all graphs, label the initial equilibrium point A. a. Suppose the Bank of Korea permanently increases its money supply. Illustrate the short- run (label equilibrium point B) and long-run effects (label equilibrium point C) of this policy. b. Now, suppose the Bank of Korea announces it plans to permanently increase its money supply but doesn't actually implement this policy. How will this affect the FX market in the short run if investors believe the Bank of Korea's announcement? c. Finally, suppose the Bank of Korea permanently increases its money supply, but this change is not anticipated. When the Bank of Korea implements this policy, how will this affect the FX market in the short run? d. Using your previous answers, evaluate the following statements: • If a country wants to decrease the value of its currency, it can do so (temporarily) without raising domestic interest rates. The central bank can increase both the domestic price level and the value of its currency in the long run. The most effective way to decrease the value of a currency is through surprising investors.

5) This question considers how the FX market will respond to changes in monetary policy in South Korea. For these questions, define the exchange rate as South Korean won per Japanese yen, Ewon/ Use the FX and money market diagrams to answer the following questions. On all graphs, label the initial equilibrium point A. a. Suppose the Bank of Korea permanently increases its money supply. Illustrate the short- run (label equilibrium point B) and long-run effects (label equilibrium point C) of this policy. b. Now, suppose the Bank of Korea announces it plans to permanently increase its money supply but doesn't actually implement this policy. How will this affect the FX market in the short run if investors believe the Bank of Korea's announcement? c. Finally, suppose the Bank of Korea permanently increases its money supply, but this change is not anticipated. When the Bank of Korea implements this policy, how will this affect the FX market in the short run? d. Using your previous answers, evaluate the following statements: • If a country wants to decrease the value of its currency, it can do so (temporarily) without raising domestic interest rates. The central bank can increase both the domestic price level and the value of its currency in the long run. The most effective way to decrease the value of a currency is through surprising investors.

Macroeconomics: Principles and Policy (MindTap Course List)
Macroeconomics: Principles and Policy (MindTap Course List)
13th Edition
ISBN:9781305280601
Author:William J. Baumol, Alan S. Blinder
Publisher:William J. Baumol, Alan S. Blinder
Chapter19: The International Monetary System: Order Or Disorder
Section: Chapter Questions
Problem 8DQ
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please help me with 5. Thank you

5) This question considers how the FX market will respond to changes in monetary policy in South Korea. For these questions, define the exchange rate as South Korean won per Japanese yen, Ewon/ Use the FX and money market diagrams to answer the following questions. On all graphs, label the initial equilibrium point A. a. Suppose the Bank of Korea permanently increases its money supply. Illustrate the short- run (label equilibrium point B) and long-run effects (label equilibrium point C) of this policy. b. Now, suppose the Bank of Korea announces it plans to permanently increase its money supply but doesn't actually implement this policy. How will this affect the FX market in the short run if investors believe the Bank of Korea's announcement? c. Finally, suppose the Bank of Korea permanently increases its money supply, but this change is not anticipated. When the Bank of Korea implements this policy, how will this affect the FX market in the short run? d. Using your previous answers, evaluate the following statements: • If a country wants to decrease the value of its currency, it can do so (temporarily) without raising domestic interest rates. The central bank can increase both the domestic price level and the value of its currency in the long run. The most effective way to decrease the value of a currency is through surprising investors.
Transcribed Image Text:5) This question considers how the FX market will respond to changes in monetary policy in South Korea. For these questions, define the exchange rate as South Korean won per Japanese yen, Ewon/ Use the FX and money market diagrams to answer the following questions. On all graphs, label the initial equilibrium point A. a. Suppose the Bank of Korea permanently increases its money supply. Illustrate the short- run (label equilibrium point B) and long-run effects (label equilibrium point C) of this policy. b. Now, suppose the Bank of Korea announces it plans to permanently increase its money supply but doesn't actually implement this policy. How will this affect the FX market in the short run if investors believe the Bank of Korea's announcement? c. Finally, suppose the Bank of Korea permanently increases its money supply, but this change is not anticipated. When the Bank of Korea implements this policy, how will this affect the FX market in the short run? d. Using your previous answers, evaluate the following statements: • If a country wants to decrease the value of its currency, it can do so (temporarily) without raising domestic interest rates. The central bank can increase both the domestic price level and the value of its currency in the long run. The most effective way to decrease the value of a currency is through surprising investors.
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