Question

6. Trade deficit and the currency depreciation Which approach to the relationship between exchange rates and the trade balance predicts that a currency depreciation will improve a nation’s trade balance if that nation’s output exceeds the sum of consumption, investment, and government expenditures? The elasticity approach The absorption approach The monetary approac

Answer 1

The absorption approach

Step-by-step explanation:

The absorption approach with respect to the balance of payments derives that a balance of trade of a country will only better if the output of the company in terms of goods and services rises by more than its absorption or utilization

Here, the absorption refers to incurred expenditure by the residents who are domestic on the goods and services.

Hence, according to the given situation, the appropriate option is absorption approach