Assume That the Marshall- Lerner Condition Does Not Hold

question 34

Multiple Choice

Assume that the Marshall- Lerner condition does not hold. An increase in the real exchange rate will tend to cause which of the following to occur?

• A) A decrease in NX and no effect on Y.
• B) An increase in NX and an increase in Y.
• C) A decrease in NX and an increase in Y.
• D) An increase in NX and a decrease in Y.
• E) A decrease in NX and a decrease in Y.

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Definitions:

Costs Of Overpricing

Consequences of setting a sale price too high, leading to reduced sales volume, customer dissatisfaction, and competitive disadvantages.

Demand

The level of demand for goods or services that individuals are eager and able to fulfill at various pricing tiers throughout a specific duration.

Inter-product Cannibalization

Occurs when a company's new product eats into the sales of one of its older products, potentially reducing overall sales and profits.

Substitute Product

A product that can be used in place of another product, satisfying the same consumer needs or wants.