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A fixed exchange rate regime may vary the value of the exchange rate. A devaluation occurs if the value the central bank defends is dropped,
A fixed exchange rate regime may vary the value of the exchange rate. A devaluation occurs if the value the central bank defends is dropped, leading to an increase in net exports, and a revaluation occurs if the value is raised leading to a decrease in net exports. Show the effects of exchange rate devaluations or revaluations. What policy is each equivalent to under a floating rate regime? Are you in favour of a fixed but adjustable exchange rate regime for Australia?
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