Country A exports good X and imports good M. Country A does not consume X and does not produce M. International prices are in USD. + Initially, at the original exchange rate of 10 pesos per dollar, A has a balance of trade deficit. A devalues its exchange rate to 11 pesos per dollar. In comparison with the situation before devaluation, examine the effect of devaluation in the long run (see definitions below). For simplicity, focus on price change and ignore macroeconomic effects. 7. (20%) What do we know about the change in the price in pesos and in USD of M in long run equilibrium (rise, fall, or unchanged)? By how much (less than, equal to, or more than 10%)? Give a one sentence explanation. PM in pesos: PM in USD: & 8. (10%) How does A's USD expenditure on M change (rise, constant, or fall)? Give a one sentence explanation. 9. (16%) Assume international demand for X is unit elastic. How does A's USD forex earnings from X change (rise, constant, or fall)? Give one sentence explanation." a. b. How does A's balance of trade in USD) change (rise, constant, or fall)? Give a one sentence explanation. Country A exports good X and imports good M. Country A does not consume X and does not produce M. International prices are in USD. + Initially, at the original exchange rate of 10 pesos per dollar, A has a balance of trade deficit. A devalues its exchange rate to 11 pesos per dollar. In comparison with the situation before devaluation, examine the effect of devaluation in the long run (see definitions below). For simplicity, focus on price change and ignore macroeconomic effects. 7. (20%) What do we know about the change in the price in pesos and in USD of M in long run equilibrium (rise, fall, or unchanged)? By how much (less than, equal to, or more than 10%)? Give a one sentence explanation. PM in pesos: PM in USD: & 8. (10%) How does A's USD expenditure on M change (rise, constant, or fall)? Give a one sentence explanation. 9. (16%) Assume international demand for X is unit elastic. How does A's USD forex earnings from X change (rise, constant, or fall)? Give one sentence explanation." a. b. How does A's balance of trade in USD) change (rise, constant, or fall)? Give a one sentence explanation