Exam 13: Mechanisms of International Adjustment

Given favorable elasticity conditions, other things equal a depreciation of the euro tends to result in

The ____ effect suggests that following a currency depreciation, a country's trade balance worsens for a period before it improves.

To the extent that labor unions attain higher wages during periods of currency depreciation, the resulting wage inflation reduces the improving competitiveness of a country's business firms caused by depreciation.

Suppose a country devalues its currency.If the country's demand for imports is inelastic, the price increase resulting from the devaluation results in a relatively small decrease in the volume of imports, causing total import expenditures to increase.

According to the Marshall-Lerner condition, a currency devaluation will be successful in improving a country's trade balance if the

Suppose the U.S.economy is operating at full capacity and the dollar's exchange value depreciates.According to the absorption approach, the United States would have to accept reductions in domestic spending if the U.S.trade balance is to improve as a result of the depreciation.

Assume the Canadian demand elasticity for imports equals 0.2, while the foreign demand elasticity for Canadian exports equals 0.3.Responding to a trade deficit, suppose the Canadian dollar depreciates by 20 percent.Other things equal, for Canada, the depreciation would lead to

Assume that a country operates at full employment.According to the absorption approach, the only way that currency depreciation can improve the country's trade balance is for the country to reduce domestic spending, thus freeing resources needed to produce additional export goods and import substitutes.

By decreasing the relative production costs of U.S.companies, a dollar appreciation tends to lower U.S.export prices in foreign-currency terms, which induces an increase in the amount of U.S.goods exported abroad.

According to the ______, following a currency devaluation, the balance of trade worsens for a while before improving.

Assume that a country is operating at full employment.According to the absorption approach, the only way that currency depreciation can improve the balance of trade is for the country to implement

Which approach considers the extent by which foreign and domestic prices adjust to a change in the exchange rate in the short run?

Assume that a country operates at less than full employment and has excess productive capacity.According to the absorption approach, a currency depreciation tends to

Concerning a currency depreciation, the elasticity approach and the absorption approach are theories that deal with the impact of the depreciation on

Assume that a country experiences unemployment and excess production capacity.According to the absorption approach, a currency depreciation tends to decrease domestic output and worsen the balance of trade.

Suppose the U.S.price elasticity of demand for imports equals 1.2 and the foreign elasticity of demand for U.S.exports equals 1.5.According to the Marshall-Lerner condition, an appreciation of the dollar's exchange value would worsen the U.S.balance of trade.

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.Other things equal, for Canada, the depreciation would lead to

The elasticity approach to currency depreciation emphasizes the income effects of depreciation.

The desire of foreign producers to preserve market share for goods sold in the United States helps contribute to complete exchange-rate pass-through following a depreciation of the dollar.

Because of the J-curve effect and partial currency pass-through, a depreciation of the domestic currency tends to increase the size of a