Economics (AS & A Level) · May / June 2025 · Paper 31 · Question 27

The diagram shows the impact of a revaluation of a country's exchange rate on the current account of the balance of payments. [diagram: graph with vertical axis labelled 'current account of the balance of payments' and horizontal axis labelled 'time', origin O; a curve rises from O, peaks, then falls below the horizontal axis] The table gives the price elasticity of demand for imports, PED_M, and the price elasticity of demand for exports, PED_X, in both the short run and the long run. Which combination of short run and long run elasticities will give the shape shown in the diagram? | | short run | | long run | | |---|---|---|---|---| | | PED_M | PED_X | PED_M | PED_X | | A | 0.2 | 0.2 | 0.4 | 0.4 | | B | 0.4 | 0.4 | 0.8 | 0.8 | | C | 0.8 | 0.8 | 1.2 | 1.2 | | D | 1.2 | 1.2 | 1.6 | 1.6 |

1. A0.2, 0.2, 0.4, 0.4
2. B0.4, 0.4, 0.8, 0.8
3. C0.8, 0.8, 1.2, 1.2
4. D1.2, 1.2, 1.6, 1.6

As printed in the paper