Assuming the Marshall-Lerner condition holds and using the ZZ/Y ...

[dalyningkenk]

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. Clearly label all curves and clearly label the initial and final equilibria.
 
  What will be an ideal response?

Question 2

From 1970 to the mid-1990s, the relative price of crude petroleum
 
  A) steadily increased.
  B) steadily decreased.
  C) increased dramatically, then decreased dramatically.
  D) decreased dramatically, then increased dramatically.
  E) remained more or less the same.

[sarahccccc]

Answer to Question 1

A real depreciation will cause NX to rise. The rise in NX will cause an increase in demand. As demand rises, Y will increase causing a rise in C and S. As Y increases, imports will increase as well. As shown in the text, the increase in imports will be less than the rise in exports. So, NX will be higher.

Answer to Question 2

C