Which Approach Predicts That If an Economy Operates at Full

question 2

Multiple Choice

Which approach predicts that if an economy operates at full employment and faces a trade deficit, currency devaluation (depreciation) will improve the trade balance only if domestic spending is cut, thus freeing resources to produce exports?

• A) the absorption approach
• B) the Marshall-Lerner condition
• C) the monetary approach
• D) the elasticity approach