A government struggling with a persistent trade deficit decides to allow its currency to undergo a substantial depreciation. According to the Marshall-Lerner condition, which of the following combinations of price elasticity of demand for exports (PEDXPED_XPEDX) and imports (PEDMPED_MPEDM) will cause the current account deficit to widen (worsen) further in the long run?
PEDX=−0.55PED_X = -0.55PEDX=−0.55; PEDM=−0.65PED_M = -0.65PEDM=−0.65
PEDX=−0.40PED_X = -0.40PEDX=−0.40; PEDM=−0.75PED_M = -0.75PEDM=−0.75
PEDX=−0.45PED_X = -0.45PEDX=−0.45; PEDM=−0.45PED_M = -0.45PEDM=−0.45
PEDX=−0.35PED_X = -0.35PEDX=−0.35; PEDM=−0.85PED_M = -0.85PEDM=−0.85
