Economics (AS & A Level) · Oct / Nov 2021 · Paper 12 · Question 26
9708Exchange rates
Which condition is necessary for a country's balance of payments on its current account to improve if it reduced its exchange rate?
- ABoth the price elasticities of supply for its imports and its exports must be elastic.
- BThe importing country will buy all the excess supplies of its trading partner to clear the market.
- CThe sum of the price elasticities of domestic demand for imports and the foreign demand for exports must be greater than one.
- DThe trading partners need to agree on the maximum prices to be charged for imports and exports.
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Correct answer: C. The sum of the price elasticities of domestic demand for imports and the foreign demand for exports must be greater than one.
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