Assume that Japan and South Korea have ﬂexible exchange rates. Other things equal, if economic growth is more rapid in Japan than in South Korea,

Question

Quizplus · Accepted Answer

If economic growth is more rapid in Japan than in South Korea, the demand for Japanese goods and services will increase, which will lead to an increase in the demand for Japanese yen. As a result, the value of the yen will appreciate, not depreciate. The South Korean won will depreciate because the demand for its goods and services will decrease relative to Japan's due to the increase in competitiveness of Japanese goods and services. Thus, the best choice is B.

Assume That Japan and South Korea Have ﬂExible Exchange Rates