Investigating the Impact of Devaluation of National Currency

One of the most important economic issues of countries is the balance in the trade balance. If a country's trade balance is often positive it means that the nation consumes less than it produces. In such a case a shrinking gap is created between the national income in equilibrium and the income in the state of full employment and its meaning is the existence of empty capacities for production in the economy. If this gap is not reduced it will lead to an increase in unemployment a further decrease in total demand and a decrease in national income. On the other hand if a country's trade balances are often negative it indicates that the nation consumes more than what it produces. In this case the national expenditures in equilibrium are more than the national income of the state of full employment and an inflationary gap is created. If this gap is not reduced it will cause a rapid growth of domestic prices and on the other hand it will increase foreign debts. As a result it is always tried to have a balanced trade balance. According to the relationship <M ? + X ? 1 X ? is the elasticity of imports with respect to the exchange rate.