Consider two countries, Japan and Korea. In 1996, Japan experienced relatively slow output growth (2%), whereas Korea had relatively robust output

Qa-d) Id also like to know how to solve in detail. Thanks

Consider two countries, Japan and Korea. In 1996, Japan experienced relatively slow output growth (2%), whereas Korea hadrelatively robust output growth (?%]. Suppose the Bank of Japanallowed the money supply to grow by 4% each year, whereas the Bank of Korea chose to maintain relatively high money growth of12% per year. For the following questions, use the simple monetary model (where L is constant). You will find it easiest to treat Korea asthe home country and Japan as the foreign country. a. 1What is the inflation rate in Korea? Mam: What is theexpected rate of depreciation in the Korean won relative to the Japanese yen (¥}‘? b. Suppose the Bank of Korea increases the money growth rate from 12% to 15%. If nothing in Japan changes, what is the new inflationrate in Korea? Using time series diagrams, illustrate how thisincrease in the money growth rate affects Korea‘s money supply Mg, prices Pg, real money supply, and Ewonfl¥ over time. (Plot eachvariable on the vertical axis and time on the horizontal axis.) c. Suppose the Bank of Korea wants to maintain an exchange ratepeg with the Japanese yen. What money growth rate would the Bankof Korea have to choose to keep the value of the won fixed relativeto the yen? 11. Suppose the Bank of Korea sought to implement policy thatwould cause the Korean won to appreciate relative to the Japanese yen. What ranges of the money growth rate (assuming positivevalues} would allow the Bank of Korea to achieve this obiective‘?

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