According to the Marshall-Lerner condition, currency depreciation has no effect on a country's trade balance if the elasticity of demand for its exports plus the elasticity of demand for its imports equals
A) 0.1.
B) 0.5.
C) 1.0.
D) 2.0.

Question

Quizplus · Accepted Answer

According to the Marshall-Lerner condition, currency depreciation will only improve a country's trade balance if the sum of the elasticity of demand for its exports and the elasticity of demand for its imports is greater than 1. Therefore, if the sum of the elasticities is equal to 1, currency depreciation will have no effect on the trade balance. Thus, the best choice is C which is equal to 1.0.

According to the Marshall-Lerner Condition, Currency Depreciation Has No Effect