The Simple Marshall-Lerner Condition Would Suggest That One of the Following

question 9

Multiple Choice

The simple Marshall-Lerner condition would suggest that one of the following cases would produce a worsening of the trade balance if the country's currency depreciated. Which one? (The negative sign on elasticities is being ignored; also, assume that trade is initially balanced.)

• A) elasticity of demand for exports = 0.8; elasticity of demand for imports = 0.5
• B) elasticity of demand for exports = 0.4; elasticity of demand for imports = 0.6
• C) demand curve for exports is vertical; demand curve for imports is horizontal
• D) elasticity of demand for exports = 0.8; elasticity of demand for imports = 0.1

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