DSE2012,Q-58

[priya123]

Can you please explain why in DSE 2012,Q-58 we get a positively sloped curve when we plot equilibrium output against real exchange rate?

[Ayushya Kaul]

Could someone elaborate on this?
Also why is it positively sloped ONLY if Marshall Lerner conditions are satisfied?

[maahi]

ok i m jst trying ....

if mr condition is satisfied then due to real depn exports increase and help in dealing with trade deficit and hence affects d income . if mr is not satisfied that is d elasticity of export dd is less responsive to exchange rate changes then the price of exports will decrease and quantity dd won't increase hence y should be lower so as e increases Y moves in opposite direction so negatively sloped .

i know v bad explanation ...

[Ayushya Kaul]

Your explanation makes sense, but yet a little hard to digest :/