Marshall-Lerner condition
a. Explain it with words and an inequality b. Draw a J curve.
Explain how the size of the η’s in the Marshall-Lerner condition
affects the shape of the J curve.
Describe with your own words the J-curve effect. Relate this to
the Marshall-Lerner condition.
According to the monetary model, what happens when there is a
fall in real income?
(c) What is meant by the Marshall-Lerner condition?
(d) Assuming the Marshall-Lerner condition holds,
contrast the factors that influence goods market equilibrium in an
open economy with those of a closed economy.
Assuming the Marshall-Lerner condition holds and using the ZZ/Y
and NX graphs, illustrate graphically and explain what effect a
real depreciation will have on output, exports, imports, and net
exports. (15 points)