Economics · International Trade
According to the Marshall-Lerner condition analysis, when the price elasticities of demand for exports and imports are less than elasticities of supply, a currency devaluation is likely to lead to which of the following outcomes?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Elasticities no longer bear any theoretical relation to the terms of trade.
- 2Devaluation favorably affects the terms of trade.
- 3There is no significant impact of devaluation on the terms of trade.
- 4Devaluation adversely affects the terms of trade.✓
Correct answer
Devaluation adversely affects the terms of trade.
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