Amount of imports fall

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Q. In the standard Keynesian framework in Open Economy Macroeconomics, the supply is assumed to be perfectly elastic and the condition required for stability of of equilibrium is the Marshall-Lerner condition. When we drop the assumption of perfectly elastic supply, the supply curve of imports becomes positively sloped and the condition for stability of equilibrium is Bickerdicke-Robinson-Meztler condition. Explain the Positively sloped Supply of imports and negatively sloping demand for imports (measuring foreign price on vertical axis and imports on horizontal axis), why as a result of rise in exchange rate, the amount of imports fall but not as much as it does when the supply is perfectly elastic?

Reference no: EM136668

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