Test your understanding: Marshall Lerner Condition + J Curve

The Marhsall Lerner Condition is designed to answer which question?

• How long will the coronavirus epidemic last?

• Will the current account improve following a depreciation?

• Is a depreciation good or bad?

• Will a currency depreciate?

Which of these correctly states the Marshall Lerner Condition:

• PED Imports + PED Exports > 1

• PED Imports - PED = 1

• PED Imports + PED Exports > -1

• PED Imports + Ped Exports must both be elastic

The ________________ explains why it may take up to two years for a currency depreciation to make significant reductions in a nation’s trade deficit.

• Marshall Lerner Condition

• J Curve effect

• SPICED

• use of monetary policy

The Marshall Lerner Condition deals with the impact of a depreciation on:

• The price of imports

• The current account

• The budget deficit

• The value of the currency

According to the Marshall Lerner the current account will improve, following a depreciation if:

• The PED of exports and Imports added up are greater than 1

• Imports are price elastic

• There is a J Curve effect

• Exports and Imports are both price inelastic

In which of these situations will the current account improve following a depreciation

• PED Imports = -0.6, PED imports = -0.3

• PED Imports = 0.6, PED imports = 0.5

• PED Imports = -0.6, PED imports = -0.5

• PED Imports = -0.6, PED imports = -0.6

• PED Imports = 0.6, PED imports = 0.6

In which of the following situations would the current account get worse following a depreciation:

• PED Imports = -0.6, PED imports = -0.3

• PED Imports = -0.2, PED imports = -0.3

• PED Imports = -0.6, PED imports = -1.3

• PED Imports = 1.6, PED imports = 0.1

• PED Imports = 0.06, PED imports = 0.3

Which of the following situations would you expect J Curve effect.

• Short term Ped Exp + Ped Imports = 0.8; Long term Ped Exp + Ped Imports = 1.2

• Short term Ped Exp + Ped Imports = 1.8; Long term Ped Exp + Ped Imports = 1.2

• Short term Ped Exp + Ped Imports = 1.2; Long term Ped Exp + Ped Imports = 0.82

• Short term Ped Exp + Ped Imports = -0.5; Long term Ped Exp + Ped Imports = -1.2

• Short term Ped Exp + Ped Imports = -0.8; Long term Ped Exp + Ped Imports = -0.2

In which of these would you expect to see a J curve effect

• Short term ML condition met; Long Term ML condition not met

• Short term ML condition not met; Long Term ML condition not met

• Short term ML condition not met; Long Term ML condition met

• Short term ML condition met; Long Term ML condition met

Which of these suggest a J Curve effect

• Short term Ped Exp + Ped Imports = 0.6; Long term Ped Exp + Ped Imports = 0.8

• Short term Ped Exp + Ped Imports = 0.8; Long term Ped Exp + Ped Imports = 0.8

• Short term Ped Exp + Ped Imports = 1.2 ; Long term Ped Exp + Ped Imports = 1.2

• Short term Ped Exp + Ped Imports = 0.8; Long term Ped Exp + Ped Imports = 1.2

• Short term Ped Exp + Ped Imports = 1.2; Long term Ped Exp + Ped Imports = 0.8