The J-curve shows that,after a currency depreciation,
A)the current account is likely to worsen before it improves.
B)the current account is likely to improve before it worsens.
C)the current account will remain unchanged after all adjustments have taken place.
D)the current account is difficult to change in the long run.

Question

Quizplus · Accepted Answer

The J-curve shows that in the short term, a currency depreciation is likely to worsen the current account balance, as the prices of imports increase and exports take time to respond to the change in prices. However, in the long run, the current account balance is expected to improve as exports become more competitive and demand for domestic products increases. This pattern is represented by the J-shaped curve, hence the name J-curve.

The J-Curve Shows That,after a Currency Depreciation