The extent to which a change in the exchange rate leads to changes in import and export prices is known as:
A) The J-curve effect
B) The Marshall-Lerner effect
C) The absorption effect
D) Pass-through effect

Question

Quizplus · Accepted Answer

The pass-through effect refers to the extent to which a change in the exchange rate is passed through to prices of imported and exported goods. It is measured by the percentage change in import/export prices for a given percentage change in the exchange rate. A high pass-through effect means that changes in the exchange rate lead to large changes in import/export prices.

The Extent to Which a Change in the Exchange Rate