The Marshall-Lerner Condition States That, All Else Equal

question 76

Multiple Choice

The Marshall-Lerner Condition states that, all else equal

• A) nominal appreciation improves the current account if export and import volumes are sufficiently elastic with respect to the real exchange rate.
• B) real depreciation improves the current account if export and import volumes are sufficiently inelastic with respect to the real exchange rate.
• C) real appreciation improves the current account if export and import volumes are sufficiently elastic with respect to the real exchange rate.
• D) real depreciation improves the current account if export and import volumes are sufficiently elastic with respect to the real exchange rate.
• E) the sum of import and export elasticities must be equal to one in order for depreciation to occur.

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Definitions:

Bond Premium

When a bond's selling price surpasses its original issued cost, known as its face value.

Annual Interest

The amount of interest charged or earned over a year on borrowed capital or investment principal.

Present Value

The contemporary financial worth of a future sum or ongoing cash flows, evaluated at a designated rate of return.

Compounded Annually

A method of calculating interest where the interest earned each year is added to the principal, and the interest for the next year is calculated on the total amount.