The _______________ states that the foreign exchange market is stable when in absolute sense the sum of the price elasticities of demands for imports and exports is greater than one.
A)J-curve effect
B)pass-through condition
C)Marshall-Lerner condition
D)stable market theory

Question

Quizplus · Accepted Answer

The statement describes the Marshall-Lerner condition, which states that a depreciation of the domestic currency will improve the trade balance if the absolute value of the sum of the price elasticities of demand for imports and exports is greater than one. This condition suggests that a stable foreign exchange market requires a certain degree of price responsiveness of both imports and exports.

The _______________ States That the Foreign Exchange Market Is Stable