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Economics (AS & A Level) · Oct / Nov 2022 · Paper 11 · Question 27

9708Exchange rates

What does the Marshall–Lerner condition state must be present for a depreciation of a currency to cause an improvement in the current account balance?

  1. AThe price elasticity of demand for exports and the price elasticity of demand for imports are both greater than one.
  2. BThe price elasticity of demand for exports and the price elasticity of demand for imports are both less than one.
  3. CThe sum of the price elasticity of demand for exports and the price elasticity of demand for imports is greater than one.
  4. DThe sum of the price elasticity of demand for exports and the price elasticity of demand for imports is less than one.

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Correct answer: C. The sum of the price elasticity of demand for exports and the price elasticity of demand for imports is greater than one.

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