Suppose the U.S.price elasticity of demand for imports equals 0.4 and the foreign demand elasticity for the U.S.exports equals 0.2.According to the Marshall-Lerner condition, a depreciation of the dollar's exchange value will improve the U.S.balance of trade.

Question

Quizplus · Accepted Answer

The Marshall-Lerner condition states that a depreciation of a country's currency will only improve its balance of trade if the sum of the price elasticity of demand for imports and the price elasticity of demand for exports is greater than 1. In this case, 0.4 + 0.2 = 0.6, which does not satisfy the condition.