Explain what the Marshall-Lerner condition represents
What will be an ideal response?
The Marshall-Lerner condition is the condition that must be satisfied for a real depreciation to cause an increase in net exports. The sum of the percentage changes in exports and imports must exceed the percentage change in the real exchange rate. When a real depreciation occurs, three effects occur: the quantity of exports increases, the quantity of imports falls, and the real cost of imports rise. The first two effects must offset the last effect for NX to rise.
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Nutella and Hazelnuts A key ingredient of Nutella is hazelnuts which are grown mostly around the Black Sea in Turkey. Nutella uses about a quarter of the world crop. Two things have occurred recently. Nutella is becoming more popular worldwide and a frost destroyed much of this season's crop. How do these occurrences affect the market for hazelnuts?
When the inflation rate is high and volatile,
A) investment is less risky and gains from trade are reduced. B) real output and real wages will grow rapidly. C) employment will expand and the unemployment rate will decline. D) investment is more risky and gains from trade are reduced.
Cyclical unemployment is:
A. long-term and chronic unemployment that exists even when the economy is producing at a normal rate. B. the extra unemployment that occurs during periods of recession. C. short-term unemployment that is associated with the process of matching workers with jobs. D. the additional unemployment not captured in official statistics resulting from discouraged workers and involuntary part-time workers.
Suppose 500,000 yen buys a basket of goods in Japan. If, at the existing exchange rate, it costs more than 500,000 yen to buy the same basket of goods in the United States, then purchasing power parity implies that the:
A. dollar should cost more yen. B. dollar is undervalued. C. dollar should cost fewer yen. D. yen is overvalued.