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Under a fixed exchange rate, suppose that the economy initially stays at the long-run equilibrium of fullemployment output level. After devaluation, the economy first reaches
Under a fixed exchange rate, suppose that the economy initially stays at the long-run equilibrium of fullemployment 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 longrun 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 (1.5 points) 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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