THE TRADE BALANCE AND EXCHANGE RATES
135
where
Q
M
is the change in the demand for imported goods, and
Q
M
/Q
M
is
the percentage change in the demand for imported goods.
If the demand for imported goods is inelastic, then
Q
M
/ Q
M
________
q/q
1
or
Q
M
____
Q
M
q
___
q
Multiplying throughout by
qQ
M
, we get
qQ
M
(
Q
M
____
Q
M
)
qQ
M
q
___
q
where
qQ
M
is the prevalent demand for imported goods valued in terms of
domestic goods before the change in the real exchange rate. Thus,
qQ
M
(
Q
M
/
Q
M
) is the extent of the reduction in the demand for imported ...
Get Macroeconomics, 2nd Edition by Pearson now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.
