Exchange-Rate Adjustments And The Balance of
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- Exchange-Rate Adjustments And The Balance ofeconomics-mcqs › exchange-rate-adjustments-and-the-balance-of
- Published
- 1 Jun 2019
- Last updated
- 28 May 2026
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Explanation
According to the Marshall-Lerner condition, a currency depreciation improves the trade balance only if the sum of the absolute elasticities of demand for exports and imports exceeds one. If the combined elasticities are less than one, as in option D where export elasticity is 0.3 and import elasticity is 0.6 (sum = 0.9), the trade balance will worsen following a depreciation.
More Exchange-Rate Adjustments And The Balance of MCQs
Practice related questions from the same subject.
- 1.What does empirical research suggest about the impact of currency depreciation on a country's trade balance?
- 2.What term describes how quickly domestic and foreign prices respond to a devaluation in the short term?
- 3.The shorter the ______ period for pass-through, the ______ the beneficial balance of trade effects on the volume of goods exchanged will be observed.
- 4.If the United Kingdom devalues the pound and both exports and imports are measured in pounds, what happens to the UK's trade balance during the currency adjustment period?
- 5.When export agreements are denominated in foreign currency and import agreements are in domestic currency, what is the impact of a dollar depreciation during the contract period?
- 6.What happens to U.S. import prices when there is complete currency pass-through following a 10% depreciation of the dollar?
- 7.In a world with only two countries, if Japan reduces the value of the yen by 20% and West Germany lowers the mark's value by 15%, what is the outcome for the yen relative to the mark?
- 8.How do adjustments in foreign production costs and profit margins affect the timeline of a U.S. dollar depreciation's impact on the trade deficit?
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