International Trade

Question 1

Balance of Payments

Answer 1

A record (usually for a year) of all the transactions between the residents of a country and the residents of alll other countries, showing credits and debits.

Question 2

What does the Marshall Lerner condition state?

Answer 2

A condition stating that when depreciation or devaluation of a country’s currency will lead to an improvement in that country’s balance of trade:

the sum of the PEDs of imports and exports must be greater than 1 for the trade balance to improve (for a trade deficit to become smaller.

This usually holds in the long term but not in the shorter term due to the J-curve effect.