If the Central Reserve Bank of Peru (the Pervian central bank) were to take steps to devalue the sol (the Peruvian currency) in foreign currency markets,the Peruvian aggregate demand curve would ____________ in the short run and the Peruvian short-run aggregate supply curve would ____________ in the long run.

Question

Quizplus · Accepted Answer

If the Central Reserve Bank of Peru were to devalue the sol, it would make exports cheaper and more attractive, leading to an increase in demand for Peruvian goods and services in foreign markets. This would shift the Peruvian aggregate demand curve rightward.

However, in the short run, the Peruvian short-run aggregate supply curve would shift leftward because the devaluation of the currency would increase the cost of imported inputs, leading to higher costs for firms and a decrease in their willingness to supply goods and services.

In the long run, firms would adjust to the higher costs by finding alternative sources for inputs and increasing their efficiency, leading to an increase in the potential output and a rightward shift of the Peruvian short-run aggregate supply curve.

If the Central Reserve Bank of Peru (The Pervian Central