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 ?
Correct answer: A. the absorption approaches
- A. the absorption approaches
- B. the Marshall Lerner approach
- C. the monetary approach
- D. the elasticities approach
Explanation
The absorption approach links the trade balance to national spending relative to output. With full employment, devaluation improves the balance only if domestic absorption is reduced so resources can shift toward exports.
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