Suppose that D = 0.75 and eD F = 0.5 for a given country: a. Are import

Suppose that εD = 0.75 and eD F = 0.5 for a given country:

a. Are import demands elastic or inelastic in this case?

b. Does the Marshall-Lerner condition hold? How do you know?

c. Suppose that domestic price of this country’s imports rise by 10 percent following a devaluation. What will happen to the quantity that it imports?

d. Suppose that the foreign currency price of this country’s exports falls by 10 percent following a devaluation. What will happen to the quantity that exports?

e. Given the circumstances detailed in parts c and

d, if initially this country had initially been spending \($10\) million on imports and earning \($8\) million on exports, what will happen to its current account balance following the devaluation.