Economics · International Trade
In the absorption approach to devaluation regarding balance of payment adjustment, for a given value of marginal propensity to import, which statement is correct?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The trade balance will improve if the marginal propensity to absorb is less than one.✓
- 2The trade balance will worsen if the marginal propensity to absorb is less than one.
- 3The trade balance will worsen if the marginal propensity to absorb is equal to one.
- 4The trade balance will improve if the marginal propensity to absorb is greater than one.
Correct answer
The trade balance will improve if the marginal propensity to absorb is less than one.
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