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How do the implications of the absorption approach differ depending on whether or not there is full employment?
Wiki User
∙ 15y ago
That's a good question for discussion, however, if the economy is at less than full employment and the marginal propensity to absorb (MPA) is less than unity, then a rise in income will improve the current account (CA). If income were to fall, it would raise the absorption-to-income ratio and thus worsen the CA. It also depends on whether the Marshall-Lerner condition is satisfied where an increase in exports will raise national income. Hope that helps,
Dmitri
Wiki User
∙ 15y ago
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