CFA Practice Question

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CFA Practice Question

Assume the Canadian demand elasticity for imports equals 1.2 while the foreign demand elasticity for Canadian exports equals 1.8. Responding to a trade deficit, suppose the Canadian dollar depreciates by 10 percent. For Canada, the depreciation would lead to a(n) ______

A. worsening trade balance - a larger deficit
B. improving trade balance - a smaller deficit
C. unchanged trade balance
Correct Answer: B

This is because the both demands are elastic.

User Contributed Comments 2

User Comment
johntan1979 Ex + Em > 1 (unit elasticity)
FozzeyBear johntan1979 you make me very angry
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