According to the J-curve effect, a depreciation of the pound's exchange value has
A) no impact on a U.K. balance-of-trade deficit in the short run.
B) no impact on a U.K. balance-of-trade deficit in the long run.
C) an immediate negative effect on the U.K. balance of trade.
D) an immediate positive effect on the U.K. balance of trade.

Question

Quizplus · Accepted Answer

According to the J-curve effect, a depreciation of the pound's exchange value initially worsens the U.K.'s balance of trade (due to higher import prices), but over time it will improve as domestic firms become more competitive and exports increase. Therefore, there would be an immediate negative effect on the U.K. balance of trade.

According to the J-Curve Effect, a Depreciation of the Pound's