onsider the response of current account to exchange rate changes studied in class. In class, we showed that the response of the current account depends on the relative strength of the price (price of exports and price of imports) and volume (quantity of exports and quantity of imports) eects. I assumed in class that the volume eects dominate. We derived the AA-DD model under that assumption. In this exercise you are asked to re-derive AA-DD model under an alternative assumption that the volume eect is weaker than the price eect. Please discuss how the AA and DD curves will change (if at all) under this alternative assumption. Plot your ndings on the "new" AA-DD diagram