s currency. Through the J-curve effect, an explanation can arrive at that when the devaluation increases the price of imports relative to the domestic goods of the country and decreases the price of domestic goods relative to the foreign buyers, it causes a short-run period during which the balance of trade falls. Devaluation leads to two periods: the pass-through analysis and the current contract period. The currency contract period refers to a situation just after devaluation when the contracts that had initially been negotiated upon becoming revalued. In the pass-through analysis period, the traders have a small effect to the changes regarding the response of new prices that have been set, although eventually, the response to these changes becomes effectively complete (Melvin and Norrbin, 237).The IS-LM-BP approach refers to a situation where goods market equilibrium, money market equilibrium, and the balance of payment equilibrium are determined by three factors the IS curve, LM curve and the BP curve. In IS curve, the equilibrium is determined when the output of goods and services supplied equals the quantity of goods and services demanded. Balance of Payments Research.
Work CitedMelvin, Michael and Stefan C. Norrbin. International Money and Finance. Oxford: Academic Press, 2013
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