Economics Questions 2 to 9 refer to an economic model where 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 very short run, short run, and long run (see definitions below). For simplicity, focus on price change and ignore macroeconomic effects. (6%) Very short run: Only A’s domestic prices adjust; everything else (quantities produced or consumed, international prices) unchanged. How do domestic prices in pesos change (rise, fall, or unchanged)? By how much (less than, equal to, or more than 10%)? Give
