Which theory suggests that when an economy is at full employment and experiencing a trade deficit, devaluing the currency will enhance the trade balance only if domestic consumption decreases, thereby allowing more resources to be allocated to export production?

Explanation

The absorption approach explains that under full employment, a currency devaluation improves the trade balance only if domestic demand is reduced, freeing resources to boost exports. Other approaches like the Marshall-Lerner condition and the elasticities approach focus on price elasticities and exchange rate effects but do not emphasize domestic spending adjustments.