4. According to the information on the Federal Reserve Bank of New York: Under a fixed exchange rate system, devaluation and revaluation are official changes in the value of a country's currency relative to other currencies. Under a floating exchange rate system, market forces generate changes in the value of the currency, known as currency depreciation or appreciation. In a fixed exchange rate system, both devaluation and revaluation can be conducted by policymakers, usually motivated by market pressures. The charter of the International Monetary Fund (IMF) directs policymakers to avoid "manipulating exchange rates...to gain an unfair competitive advantage over other members."https://www.newyorkfed.org/aboutthefed/fedpoint/fed38.html

1. A key effect of devaluation is that it helps to reduce the current account deficit. Explain how a devaluation policy can improve current account in a DD-AA-XX model.
2. Current account balance equals national saving less domestic investment. The CA improvement can occur only if investment falls, saving rises, or both. How might devaluation affect national saving and domestic investment in Keynesian national income determination theory?
3. When a central bank devalues after a balance of payments crisis, it usually gains foreign reserves. What would happen to its balance of payment if the market believed that another devaluation would occur in the near future? Analyze the money-forex market equilibrium.