The absorption approach to currency devaluation deals with the income effects of devaluation while the elasticity approach to devaluation deals with the price effects of devaluation.

Question

Quizplus · Accepted Answer

This statement accurately describes the differences between the absorption approach and elasticity approach to currency devaluation. The absorption approach looks at how devaluation affects domestic income and consumption patterns, while the elasticity approach focuses on how devaluation changes the relative prices of imports and exports.

The Absorption Approach to Currency Devaluation Deals with the Income