A real exchange rate depreciation will initially cause a decrease in net exports when which of the following holds?

Question

Quizplus · Accepted Answer

The J-Curve effect explains how a country's trade balance initially worsens following a depreciation of its currency before improving over time. Initially, the price of imports rises faster than the quantity of imports falls, and the value of exports rises slower than the quantity of exports increases, leading to a temporary decrease in net exports.

A Real Exchange Rate Depreciation Will Initially Cause a Decrease