Consider an economy with a fixed exchange rate regime where the current account is negatively affected by an increase in the real exchange rate in the short run (that is, the value effect is stronger than the volume effect). Explain the effects of a devaluation in this economy by comparing it to the baseline case where the volume effect dominates. Use a graphical analysis accompanied by an intuitive (verbal) explanation and make sure you analyze what happens to the following: short run equilibrium income, the exchange rate, the net exports, the level of capital inflows and the level of foreign exchange reserves at the central bank. (NOTE: Assume that the DD curve under the revised assumption will be steeper than the AA curve.)