marshall-lerner and j-curve effect

Question 1

what are the marshall lerner condition and j curve effects

Answer 1

-when the currency is depreciated it is an evaluation point to rectify current account deficit
-initially in deficit falls if PED<1 then rises when PED>1

Question 2

what does the marshall lerner condition state

Answer 2

a currency depreciation will only correct a current account deficit if:
price elasticity of demand for exports + price elasticity of demand of imports is greater than one

Question 3

PED and total revenue

Answer 3

-price elastic: increase price, reduced revenue
-inelastic: : increase price, increases revenue

Question 4

elasticity of imports and exports and net exports

Answer 4

-if overall is inelastic: if there is a fall in price, total net exports falls and current account deficit worsens

Question 5

issue with marshall lerner and the j-curve effect

Answer 5

• in the short run, net exports usually inelastic

-j curve: y current (positive above), x time
-current account worsens before it improves