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      Question

      The "Marshall-Lerner Condition" must be satisfied for a

      currency depreciation to:
      A Improve the capital account. Correct Answer Incorrect Answer
      B Improve the current account in the long run. Correct Answer Incorrect Answer
      C Increase foreign exchange reserves immediately. Correct Answer Incorrect Answer
      D Stabilize the exchange rate. Correct Answer Incorrect Answer
      E None of these Correct Answer Incorrect Answer

      Solution

      The condition states that a depreciation will improve the trade balance if the sum of the absolute price elasticities of demand for exports and imports is greater than 1 (|ηx| + |ηm| > 1).

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