Which Approach Predicts That If an Economy Operates at Full

question 113

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 approach
• C) The monetary approach
• D) The elasticities approach

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Definitions:

Misallocation

The inefficient distribution or use of resources, often leading to suboptimal economic outcomes.

Nominal Gain

The increase in the monetary value of an asset or investment without adjusting for inflation, representing a simple difference in price.

Real Gain

The increase in value or profit after adjusting for inflation or other external factors that affect purchasing power.

Price Level

The overall level of prices of goods and services in an economy at a given time, often measured by a price index.