Marshall learner effect and J curve condition

• For an economy with a large current account deficit, what is one way to rectify it?

  Depreciating the currency
• What are two evaluation points to consider when using currency depreciation to fix a current account deficit?

  Marshall-Lerner condition and J-curve effect
• With a currency depreciation, what happens to imports?

  Imports become more expensive
• With a currency depreciation, what happens to exports?

  Exports become cheaper
• What is the expected impact of cheaper exports on demand?

  Demand for exports should increase
• What is the expected impact of more expensive imports on demand?

  Demand for imports should decrease
• According to the Marshall-Lerner condition, when will a currency depreciation correct a current account deficit?

  If PED exports + PED imports > 1
• Generically, according to the Marshall-Lerner condition, when will the current account deficit be resolved?

  If PED for net exports is greater than one
• What does the acronym "elastic only irritates skin" represent?

  Demand elasticity and total revenue relationship
• If demand for a product is price elastic and you increase the price, what happens to total revenue?

  Total revenue will fall
• If a good is price inelastic and you increase the price, what happens to total revenue?

  Total revenue will increase
• If export demand is very inelastic and there is a currency depreciation, what happens to total revenue from exports?

  Total revenue will fall
• If import demand is inelastic and there is a currency depreciation, what happens to total expenditure on imports?

  Expenditure will increase
• What is the current account measuring?

  Money flows
• If revenue from exports is falling and expenditure on imports is rising, what happens to the current account position?

  The current account worsens
• If the overall elasticity of net exports is inelastic, what happens when there is a currency depreciation?

  Total revenue falls
• According to the Marshall-Lerner condition, what happens if the sum of PED for exports and imports is less than one after depreciating the currency?

  The current account deficit will worsen
• What is the effect on total revenue if the elasticity for net exports was actually more than one after reducing the price of overall net exports?

  Increase in the total revenue
• In the short term, what do economists tend to assume about demand for imports and exports after a currency depreciates?

  Demand tends to be inelastic
• Why is net export demand often inelastic in the short term following a currency depreciation?

  Adjustment to new prices takes time
• What effect describes a situation where a current account deficit worsens before improving after a currency depreciation?

  The J-curve effect
• What happens to the current account in the short term, according to the J-curve effect, after a currency depreciates?

  The current account deficit will worsen
• According to the J-curve effect, when will the current account start to improve after a currency depreciation?

  When people adjust to the new exchange rate
• What condition is not held in the short term, leading to the initial worsening of the current account deficit in the J-curve effect?

  The Marshall-Lerner condition
• In a J-curve diagram, which axis represents the current account balance?

  The y-axis
• In a J-curve diagram, which axis represents time?

  The x-axis
• What type of policies should you watch a previous video on to understand expenditure switching policies?

  Policies to rectify current account deficit
• What would a current account above the x-axis on the J-curve represent?

  Current account surplus
• What would a current account below the x-axis on the J-curve represent?

  Current account deficit