15) Assume the Marshall-Lerner condition holds. Which of the following will caus

Question

15) Assume the Marshall-Lerner condition holds. Which of the following will cause an increase in net exports? A) an increase in govermment spending B) an increase in investment G) a reduction in foreign output D) a reduction in the real exchange rate 16) Which of the following conditions must be satisfied for the demand for domestic goods to be equal to the domestic demand for goods? 11) G-T' = 0 OS 17) A change in which of the following variables will have no direct effect on domestic demand? A) domestic income B) foreign income C) government spending D) the interest rate (t)

Explanation / Answer

15. Option D) According to Marshall-Lerner condition if domestic currency devalues, imports become more expensive and exports become cheaper due to the change in relative prices. So a reduction in the real exchange rate will cause an increase in net exports

16. Option D)

17. Option B). As domestic income, government spending and interest rate of a nation would have direct effects on the goods produced in a nation.

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