12 . Equilibrium changes in the foreign exchange market

The following questions focus on the exchange rate between the euro and the South Korean won. Assume the exchange rate is flexible. The exchange rate is defined as the number of euros you must pay for one won.

Suppose an economic expansion in South Korea causes South Korean incomes to rise, while European 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.

O Supply of Won Demand for Won Supply of Won EUROS PRICE OF WON Demand for Won QUANTITY OF WONO Supply of Won Demand for Won O Supply of Won EUROS PRICE OF WON Demand for Won QUANTITY OF WON