The Marshall-Lerner Condition (IB HL Only)

This video explains the Marshall-Lerner Condition for determining whether a depreciation of a nation’s currency will improve or worsen its current account balance. The MLC is an application of the total revenue test of price elasticity of demand, and applies to the sections of the Econ course on Balance of Payments and Exchange Rates.

After watching the video, read and respond to the discussion questions in the following blog post: The Marshall-Lerner Condition, the J-curve, and the US trade deficit

There is also an in-class research assignment to accompany this lesson. We will do this in my class with HL students over the next two class periods. Elasticity, exchange rates and the balance of payments – understanding the Marshall Lerner Condition

After watching this lesson, be sure to watch part 2 on the J-curve, a graphical illustration of the Marshall-Lerner Condition.

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