Q. Consider two countries: Japan also Korea. In 1996 Japan experienced relatively slow output growth (1percent (%)), while Korea had relatively robust output growth (6percent (%)). Assume the Bank of Japan allowed the money supply to grow by 2percent (%) each yr, while the Bank of Korea chose to maintain relatively high money growth of 12percent (%) per yr.
For subsequent questions utilize the simple monetary model (where L is constant). You will find it easiest to treat Korea as the home country also Japan as the foreign country.

Assume the Bank of Korea wants to maintain an exchange rate peg with the Japanese yen. Illustrate what money growth rate would the Bank of Korea have to choose to keep the value of the won fixed relative to the yen?

Assume the Bank of Korea sought to implement policy which would cause the Korean won to appreciate relative to the Japanese yen. Illustrate what ranges of the money growth rate (assuming positive values) would allow the Bank of Korea to achieve this objective?