According to the Marshall-Lerner condition, currency depreciation would have a positive 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) 0.2.
B) 0.5.
C) 1.0.
D) 2.0.

Question

Quizplus · Accepted Answer

The Marshall-Lerner condition states that currency depreciation will improve a country's trade balance if the sum of the price elasticity of demand for exports and the price elasticity of demand for imports is greater than one. Therefore, an answer of 2.0 indicates a situation where the condition is strongly met, suggesting a positive effect on the trade balance.

According to the Marshall-Lerner Condition, Currency Depreciation Would Have a Positive