CFA Practice Question

There are 341 practice questions for this study session.

CFA Practice Question

According to the Marshall-Lerner condition, a currency depreciation is least likely to lead to an improvement in the home country's trade balance when home demand for imports is ______
A. inelastic and foreign export demand is inelastic.
B. elastic and foreign export demand is inelastic.
C. inelastic and foreign export demand is elastic.
Explanation: When both demands are inelastic, a currency depreciation will actually make the trade balance worse.

User Contributed Comments 1

User Comment
Miqizjg import inelastic, price increase will lead to total import dollar amount increase; export inelastic, price decrease will lead to total export dollar amount increase; balance=export-import will worsen
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