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.
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
The notion that, following a currency depreciation the balance of trade falls for a while before increasing is called an effect ?
The balance of trade can only worsen if income ____ relative to absorption ?
According to the Marshall-Lerner condition if a country's currency depreciates its trade balance will worsen if ?
The extent to which a change in the exchange rate leads to changes in import and export prices is known as the ?
Economic theory predicts that a currency depreciation will least lead to an improvement in the home country's trade balance when ?
Suppose that U.S dollar depreciates 70 percent against the yen yet Japanese export prices to Americans did not decrease by the full extent of the dollar depreciation. This is best explained by ?