The Pugelovian government has just devalued the Pugelovian currency by 10 percent.

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QUESTION:

The Pugelovian government has just devalued the Pugelovian currency by 10 percent. For each of the following, will this devaluation improve the Pugelovian current account deficit? Explain each.

a. People are very fixed in their habits. Both Pugelovian importers and foreign buyers of Pugelovian exports buy the same physical volumes no matter what.

b. Pugelovian firms keep the Pugelovian pnut prices of Pugelovian exports constant, and foreign firms keep the foreign-currency prices of exports to Pugelovia constant?


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