Under a fixed exchange rate, suppose that the economy initially stays at the long-run equilibrium of full- employment output level. After devaluation, the economy first reaches its short-run equilibrium, and then adjusts to its new long-run equilibrium. Compared to the short-run equilibrium, we find that the new long- run equilibrium has O a higher output level and the same nominal exchange rate, E. a lower output level and a lower nominal exchange rate, E. a higher output level and a lower nominal exchange rate, E. the same output level and a higher nominal exchange rate, E. a lower output level and the same nominal exchange rate, E.
Under a fixed exchange rate, suppose that the economy initially stays at the long-run equilibrium of full- employment output level. After devaluation, the economy first reaches its short-run equilibrium, and then adjusts to its new long-run equilibrium. Compared to the short-run equilibrium, we find that the new long- run equilibrium has O a higher output level and the same nominal exchange rate, E. a lower output level and a lower nominal exchange rate, E. a higher output level and a lower nominal exchange rate, E. the same output level and a higher nominal exchange rate, E. a lower output level and the same nominal exchange rate, E.
Chapter22: International Finance
Section: Chapter Questions
Problem 10QP
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![Under a fixed exchange rate, suppose that the economy initially stays at the long-run equilibrium of full-
employment output level. After devaluation, the economy first reaches its short-run equilibrium, and then
adjusts to its new long-run equilibrium. Compared to the short-run equilibrium, we find that the new long-
run equilibrium has
a higher output level and the same nominal exchange rate, E.
a lower output level and a lower nominal exchange rate, E.
a higher output level and a lower nominal exchange rate, E.
the same output level and a higher nominal exchange rate, E.
a lower output level and the same nominal exchange rate, E.
Question 49 (
Suppose that the economy initially stays at the long-run equilibrium of full-employment output level with a
fixed exchange rate. After devaluation, the economy reaches its new long-run equilibrium. Comparing
this new long-run equilibrium with the initial long-run equilibrium, we find that in the new long-run
equilibrium
the domestic price increases more than the nominal exchange rate.
the domestic price increases less than the nominal exchange rate.
both the domestic price and nominal exchange rate increase at the same rate.
the domestic price is unchanged; the nominal exchange rate increases.
the domestic price decreases; the nominal exchange rate increases.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4dbf5c61-0c7b-4a07-957a-cddaa33ab509%2F0e98e9fa-e621-4f99-88e6-56e92be10682%2Ff4y3p9_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Under a fixed exchange rate, suppose that the economy initially stays at the long-run equilibrium of full-
employment output level. After devaluation, the economy first reaches its short-run equilibrium, and then
adjusts to its new long-run equilibrium. Compared to the short-run equilibrium, we find that the new long-
run equilibrium has
a higher output level and the same nominal exchange rate, E.
a lower output level and a lower nominal exchange rate, E.
a higher output level and a lower nominal exchange rate, E.
the same output level and a higher nominal exchange rate, E.
a lower output level and the same nominal exchange rate, E.
Question 49 (
Suppose that the economy initially stays at the long-run equilibrium of full-employment output level with a
fixed exchange rate. After devaluation, the economy reaches its new long-run equilibrium. Comparing
this new long-run equilibrium with the initial long-run equilibrium, we find that in the new long-run
equilibrium
the domestic price increases more than the nominal exchange rate.
the domestic price increases less than the nominal exchange rate.
both the domestic price and nominal exchange rate increase at the same rate.
the domestic price is unchanged; the nominal exchange rate increases.
the domestic price decreases; the nominal exchange rate increases.
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