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State and explain the Marshall Lerner condition

State and explain the Marshall Lerner condition

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Answer #1

Marshall Lerner condition state that in case of elastic demand then currency appreciation or depreciation can cause current account deficit or surplus .
In case of currency appreciation value of imports will decrease and value of exports will increase. So in long term imports will increase and exports will decrease leading to current account deficit.
In case of currency depreciation value of imports will increase and value of exports will decrease. So in long term imports will decrease and exports will increase leading to current account surplus.

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