According to the J-curve, following a depreciation, the current account has a tendency to become more _____ initially, and then _____.
A) positive, improve
B) positive, worsen
C) negative, improve
D) negative, worsen
E) none of the above

Question

Quizplus · Accepted Answer

The J-curve theory suggests that after a currency depreciates, a country's current account balance might initially deteriorate (become more negative) because the prices of imports become more expensive faster than the volume of exports increases. Over time, as demand adjusts to the new prices, the volume of exports can increase, leading to an improvement in the current account balance.

According to the J-Curve, Following a Depreciation, the Current Account