3. The US and South Korea are trading partners, and also the US has a zero current account balance. Assume now that the inflation rate in the united state decreases relative to the inflation rate in south Korea.

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(a) based upon the decrease in the inflation price in the US, will us exports to south Korea boost or decrease?

If the inflation rate (PL) in the united state decreases,, the price level PL is falling,,, US products are becoming cheaper and thus more affordable contrasted to South oriental goods. Southern Koreans import more US goods,,, the united state exports an ext of the cheap products to south Korea.

Answer - if the current account is in ~ zero,, and the united state exports increase,, climate exports will be higher than imports, therefore the US"s current account balance will certainly be in surplus.
(c) The south Korean money is the won. Attract a CLG the the foreign exchange market for the united state dollar. Display the effect of the lower inflation price in the united state on the winner price per united state dollar.
If the us price level is falling, climate US items are getting cheaper loved one to the South korean goods, as such the Koreans import more US goods. The S. Koreans profession won for us goods, because of this there is a excess of won in the FOREX market,, the won"s value decreases.
On the other side - the united state exports goods, to be able to buy this US items the S. Koreans have to exchange their won for us dollars,, bring about a higher level of need for us dollars,, therefore the us dollar appreciates loved one to the won.
The important component to recognize ion this concern is that the college board is asking for the price of winner per dollar... For this reason the horizontal axis will be in dollars.

You can either display the above,, a need increase or a it is provided decrease,, either will obtain you the points,, as long as they display the variety of won per dollar to be increasing.

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Answer - attract a CLG of the FOREX,, display (arrows) the a shifting appropriate of the need curve (increase) or a leftward transition of the supply curve (decrease),, and rise of the won/dollar ratio.

Posted by2175forals.comAPat3:24 AM

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