According to the absorption approach equation B = Y - A, currency devaluation improves a nation's trade balance if
A) Y increases and A increases.
B) Y decreases and A decreases.
C) Y increases and/or A decreases.
D) Y decreases and/or A increases.

Question

Quizplus · Accepted Answer

According to the absorption approach equation B = Y - A, currency devaluation improves a nation's trade balance if either Y (national income) increases or A (domestic absorption) decreases. Therefore, the best choice is C, which states that Y increases and/or A decreases.

According to the Absorption Approach Equation B = Y -