Following a real appreciation which of the following scenario is consistent with Marshall ndash Lern...........

Economics- Phase (I & II) Inflation and Phillips Curve

Following a real appreciation, which of the following scenario is consistent with Marshall–Lerner condition holding. Assume Net Income from abroad and Net Transfer does not change.

Capital Account initially deteriorate but eventually improves

Current account initially deteriorate but eventually improves

Capital Account not affected

Current Account not affected

Fluctuating capital

छोटे Courses बड़े Results

Master Inflation and Phillips Curve

Prepare through Micro-courses

Try Now

Explanation:

First note that current account is NX +NI+NT; and we assume the latter two are constant. By definition, capital account + current account sum to zero; so as capital account improving correspond to current account deteriorating. Marshall–Lerner condition state that an increase in real exchange rate result in decrease in NX. Decrease in NX translate to decrease in current account (i.e. deteriorating)]