Marshall Lerner Condition Diagram. Werecall the goods market equilibrium condition from chap ter 2. This is what the marshall lerner condition states.
The r satisfying the interest parity condition must also equate the real domestic money supply to aggregate real money demand. In the diagram as demand for exports picks up and domestic consumers switch their spending away from imported goods and services the overall balance of payments starts to improve. Marshall lerner condition the marshall lerner condition also called the marshall lerner robinson hereafter mlr condition is at the heart of the elasticities approach to the balance of payments.
Marshall lerner condition proof.
Aggregate demand in turn depends in the closed economy on planned expenditure on consumption and investment by the private sector and planned government spending and can be written as. 12 the diagram shows a market for a good which is supplied partly from domestic production and partly from imports. The marshall lerner condition refers to the impact of a depreciation or devaluation of a currency on the current account of the balance of payments. 28 in a country the marshall lerner condition for an improvement in the trade balance is satisfied in the long run but quantities of imports and exports are slow to respond to price.