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What should I do?
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3/16/2015 1:54:33 AM
Posted: 2 years ago
"Devaluation (in forex) has a harmful effect
when export of its country has foreign demand (I disagree; elasticity must be beneficial)
and imports has inelastic local demand (agreed)"
According to Marshall Lerner or logically, if exports are elastic then due to devaluation it should increase the exports and thus it must be beneficial for BoP.
But the indication that "imports have inelastic local demand" implies that we are still buying/importing expensive products (after devaluation of domestic currency).
Thus it generally follows that the benefit of increased exports (due to elastic demand) would be off set by the increased cost of constant (inelastic) imported goods. Thus it would be harmful, combinedly.
In other words, devaluation is beneficial only if both export and imports have elasticity of 1 or more.
My question is; do you think the first statement (above) "in its wording" inherently consider the given detail above or is it confusing without detail? Should I argue with instructor that elastic exports "individually" must be not be harmful rather beneficial.
After all my instructor didn't explained the combined (effect) detail. I questioned it once, but he rather insisted that elastic exports would be harmful due to other factors like instead of decreased price, foreigners would still lower their demand (or would use the substitute_ price consciousness), that is obviously absurd explanation. Should I raise the point again (confused for how to proceed I just get hyper and the whole class is so showy, shake their heads in his favor, as they've understood all as well) ?
Remove the "I want", remainder is the "peace". ~Al-Ghazali~
"This time will also pass", a dose to cure both; the excitement & the grievance. ~Ayaz~