According to the Marshall-Lerner condition if a country's currency depreciates its trade balance will worsen if ?
Correct answer: D. elasticity of demand for exports = 0.3; elasticity of demand for imports = 0.6
- A. elasticity of demand for exports = 0.9; elasticity of demand for imports = 0.4
- B. elasticity of demand for exports = 0.7; elasticity of demand for imports = 0.3
- C. elasticity of demand for exports = 0.5; elasticity of demand for imports = 0.7
- D. elasticity of demand for exports = 0.3; elasticity of demand for imports = 0.6
Explanation
The Marshall-Lerner condition requires the sum of export and import demand elasticities to exceed one for depreciation to improve the trade balance. In option d, 0.3 plus 0.6 equals 0.9, so the trade balance worsens.
Report an error
The more specific you are, the faster it gets fixed. A source beats an opinion.
Prefer email? [email protected]
About Macroeconomics
The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
Practise Macroeconomics
1,499 free Macroeconomics MCQs from Economics, each with the correct answer and an explanation. Unlimited attempts, no account needed.
Discussion
Stuck on an option, or know a faster way to get there? Ask or explain it here.
No comments yet. Be the first to explain this one.
Exams that ask Economics questions like this
Economics is on 3 papers prepared for on TestUstad, and all of them draw the same bank, so this question is worth knowing for every one of them.
More Macroeconomics questions
Given a two-country world, suppose Japan devalues the yen by 20 percent and west German devalues the mark by 15 percent This result is a (an)?
Complete currency pass through arises when a 10 percent depreciation in the value of the dollar causes U.S?
If export contracts are written in terms of foreign currency and import contracts are denominated in domestic currency a depreciation of the dollar during the currency contract period ?
The balance of trade can only worsen if income ____ relative to absorption ?
The notion that, following a currency depreciation the balance of trade falls for a while before increasing is called an effect ?
Which approach predicts that is an economy operates a full employment and faces trade deficit currency devaluation will improve the trade balance only if domestic spending is cut thus freeing resources to produce exports ?