In separate diagrams, provide a graphical analysis of a devaluation

| November 24, 2016

In separate diagrams, provide a graphical analysis of a devaluation (ie. a change by the home country of the fixed price of foreign currency from, say $1.50 to $2.00) by the home country of the domestic currency values of its imported goods and exported goods (Hint: domestic currency prices should appear on the vertical axes of both graphs). In addition you must demonstrate how prices and spending levels change in the two markets following the devaluation. Provide a short discussion of why and how the various curves shift and the impacts of these shifts on the home country’s current account balance. (Assume that supply curves in both markets are UPWARD sloping. Assume that the home country is Southland and it exports bananas; the foreign country is Northland and it exports apples. The Southland curency is peso and the Northland currency is krona. Before the devaluation Southland pegs its currency to the krona at the rate of 1.5 After the devaluation the new rate is 2 pesos per krona)

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