Exam 13: Mechanisms of International Adjustment

According to the absorption approach equation B = Y - A, currency devaluation improves a nation's trade balance if

According to the Marshall-Lerner condition, a currency depreciation will best lead to an improvement on the home country's trade balance when the

How do movements in exchange rates affect domestic costs, in the presence of foreign sourcing?

Assume an economy operates at full employment and faces a trade deficit.According to the absorption approach, currency devaluation will improve the trade balance if domestic

According to the J-curve effect, a depreciation of the pound's exchange value has

The J-curve effect implies that the price elasticity of demand for imports and exports is more elastic in the short run than in the long run.

One of the lags that occurs between changes in relative prices and the quantities of goods traded is the

The time period that it takes for companies to form new business connections and place new orders in response to currency depreciation is known as the

In the early 1990s, the yen sharply appreciated against the dollar.To protect themselves from export reductions caused by the yen's appreciation, Japanese auto companies transferred increasing amounts of auto production from the United States to Japan.

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The J-curve effect implies that in the short run a currency depreciation will result in a balance of trade surplus for the home country.As time passes, however, the home country's balance of trade will move toward deficit.

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

The shorter the currency pass-through period, the _______ required for currency depreciation to have the intended effect on the trade balance.

The Marshall-Lerner condition suggests that depreciation of the Swiss franc leads to a worsening of Switzerland's trade balance if the

The Marshall-Lerner condition illustrates

The Marshall-Lerner condition suggests that if the sum of a country's elasticity of demand for imports and the foreign elasticity of demand for the country's exports exceeds 1.0, an appreciation of the country's exchange rate will worsen its balance of trade.

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

What is a pass-through relationship?

The elasticity approach to currency depreciation emphasizes the relative price effects of depreciation and suggests that depreciation best improves a country's trade balance when the elasticities of demand for the country's imports and exports are high.

When manufacturing computer software, suppose that Microsoft Inc.uses labor and materials whose costs are denominated in dollars and Swiss francs respectively.If the dollar's exchange value depreciates 10 percent against the Swiss franc, the Swiss franc-denominated cost of the firm's software falls by 10 percent.