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Economics (AS & A Level) · May / June 2021 · Paper 11 · Question 29

9708Exchange rates

A country depreciates its currency to improve the current account of its balance of payments. The effect of the policy is shown. What is the most likely cause of the movement from X to Y?

  1. AThe combined income elasticity of demand for exports and imports is +2.0.
  2. BThe combined income elasticity of demand for exports and imports is +0.2.
  3. CThe combined price elasticity of demand for exports and imports is –2.0.
  4. DThe combined price elasticity of demand for exports and imports is –0.2.

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Correct answer: C. The combined price elasticity of demand for exports and imports is –2.0.

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