CAIE A-Level Economics 11.2.5 Marshall-Lerner Condition and J-Curve

Practise applying export and import elasticities to the Marshall-Lerner condition and interpreting why depreciation may worsen the current account before improving it along a…

Exam points

add absolute export and import PED values to test whether the Marshall-Lerner condition holds
interpret J-curve diagrams using inelastic short-run and more elastic long-run responses
evaluate whether depreciation improves the current account through elasticities, time and capacity

[Maximum number: 1]

An economy has a large surplus on the current account of its balance of payments. It revalues its currency. The current account of the balance of payments becomes a greater surplus in the short run. In the long run the surplus becomes smaller and eventually becomes a deficit.

What is the sum of the price elasticities of imports and exports in the short run and in the long run?

short run

long run

greater than 1.0

less than 1.0

greater than 1.0

less than 1.0

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11.2.5—Marshall-Lerner and J-curve question 1