Evaluations

Question 1

Marshall-Lerner Condition?

Answer 1

States that when a currency depreciates, the current account balance will only improve if the sum of the PEDs for exports & imports is greater than 1 (elastic)

Question 2

J-curve?

Answer 2

In the short-run, a depreciation of currency will initially lead to a worsening of the current account balance, before it begins to improve. This is due to price inelastic demand in the short-term & price elastic demand in the long term