Assume that Japan and China decide to float their currency in the international market, ceteris paribus. Also, if the People’s Bank of China (central bank) declines the interest rate relative to the...

Assume that Japan and China decide to float their currency in the international market, ceteris paribus. Also, if the People’s Bank of China (central bank) declines the interest rate relative to the Japanese rate, what will happen to the exchange rate between the two currencies? What impact does the increase in interest rate have on the current account balance and trade balance of Japan in the short run? (Hint: Explain by using the interest rate and aggregate demand relationship).