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- Title
Absorption and Elasticity: A Fuller Reconciliation.
- Authors
Yeager, Leland B.
- Abstract
Several reconciliations have been published of the elasticity and absorption approaches to the analysis of devaluation. Most of them remain on an abstract and formal level.[2] They do not show just how an exchange-rate adjustment influences total real absorption (private and government consumption plus investment) in relation to total real income and how this influence depends on the familiar "four elasticities" of import and export supply and demand. The present paper seeks to show this by describing the circumstances and incentives confronting individual decision makers. <BR> The absorption approach portrays a country's deficit in foreign trade as an excess of absorption over income, i.e. of investment over saving (both defined broadly so as to include a government budget deficit or surplus). How can devaluation remedy this over-absorption? Several conceivable "effects" are mentioned in writings on the absorption approach, but none seems strong and dependable.
- Subjects
FOREIGN exchange rates; ELASTICITY (Economics); ECONOMIC equilibrium; BALANCE of trade; INTERNATIONAL trade; SUPPLY-side economics; ECONOMICS
- Publication
Economica, 1970, Vol 37, Issue 145, p68
- ISSN
0013-0427
- Publication type
Article
- DOI
10.2307/2552002