Devaluation Shifts AD Rightward, Raising Output and Prices

Steps:

• Devaluation lowers the currency value, making exports cheaper and imports costlier, increasing net exports.
• Net exports are a component of AD, so the AD curve shifts right.
• The new AD intersects the unchanged short-run AS at a higher output level and price level.
• This new intersection point is the equilibrium.

Why B is correct:

• B depicts higher equilibrium output and price level, matching the rightward AD shift per the AD-AS model.

Why the others are wrong:

• A: Shows lower output and prices, implying leftward AD shift.
• C: Indicates unchanged output but higher prices, suggesting vertical long-run AS.
• D: Represents no shift, maintaining original equilibrium.

Final answer: B