According to the Marshall-Lerner condition, a currency devaluation will be successful in improving a country's trade balance if the
A) sum of the elasticities of supply is more than 1.
B) sum of the elasticities of supply is less than 1.
C) sum of the elasticities of demand is more than 1.
D) sum of the elasticities of demand is less than 1.

Question

Quizplus · Accepted Answer

The Marshall-Lerner condition states that a currency devaluation will improve a country's trade balance if the sum of the price elasticities of demand for imports and exports is greater than one. This is because the increased price competitiveness leads to a more than proportional rise in the volume of exports and a fall in imports, improving the trade balance.

According to the Marshall-Lerner Condition, a Currency Devaluation Will Be