The elasticities approach and the absorption approach are theories of the balance of trade that emphasize trade in real goods and have little to say about the capital account.

Question

Quizplus · Accepted Answer

The elasticities approach and the absorption approach are concerned with the balance of trade in real goods and services, and do not focus on the capital account. They primarily examine factors like changes in income, prices, and exchange rates that affect the demand for imports and exports, with the aim of explaining patterns of trade and current account imbalances.

The Elasticities Approach and the Absorption Approach Are Theories of the Balance