The diagram illustrates the effect of a revaluation of a country’s exchange rate on the current account of the balance of payments. The table shows the price elasticity of demand for imports, PEDM, and the price elasticity of demand for exports, PEDX, in both the short run and the long run. Which pairing of short run and long run elasticities would produce the shape displayed in the diagram?
- Along run PEDX 0.4, PEDM 0.4; short run PEDX 0.2, PEDM 0.2
- Blong run PEDX 0.8, PEDM 0.8; short run PEDX 0.4, PEDM 0.4
- Clong run PEDX 1.2, PEDM 1.2; short run PEDX 0.8, PEDM 0.8
- Dlong run PEDX 1.6, PEDM 1.6; short run PEDX 1.2, PEDM 1.2