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Balance of payments

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Question 6

An economy is experiencing a persistent current account deficit. The government decides to devalue the domestic currency by 8%. Economists estimate that the price elasticity of demand for the country's exports is -0.65.

According to the Marshall-Lerner condition, for this devaluation to successfully improve the balance of trade in the long run, the price elasticity of demand for its imports (expressed as a positive value) must be:

A

greater than 0.350.350.35

B

less than 0.350.350.35

C

greater than 1.651.651.65

D

less than 0.650.650.65

Markscheme

Balance of payments Questions

  1. A Level
  2. /Economics
  3. /Balance of payments

38 exam-style questions on OCR A Level Economics Balance of payments. Each one has a worked solution and a mark scheme showing where the marks go.

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