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Unformatted text preview: The sum of the two PEDs is 1.4 Because the sum of the price elasticities for imports and exports is greater than 1, then the balance of payments will improve. 3. State the condition of Marshal Lerner The condition states that, for a currency devaluation to have a positive impact on trade balance, the sum of price elasticity of exports and imports must be greater than 1. So fore a currency devaluation to lead to an improvement in the balance of trade, the sum of price elasticity of exports and imports (in absolute value) must be greater than 1. Inversely, for a currency devaluation to lead to an setback (widening) in the balance of trade, the sum of price elasticity of exports and imports (in absolute value) must be less than 1. If the sum of price elasticity of exports and imports is equal to one, then this has no effect on balance of trade....
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 Fall '11
 hermanschwartz

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