The J curve shows that:
A)devaluation is more likely to improve the trade balance in the short-run than in the long-run.
B)devaluation is more likely to improve the trade balance after a longer span of time has elapsed.
C)devaluation is likely to be unstable.
D)devaluation is unlikely to improve the trade balance in either the short-run or the long-run.

Question

Quizplus · Accepted Answer

The J curve theory suggests that following a devaluation, a country's trade balance will initially deteriorate before it starts to improve over time. This is because prices of imports become more expensive immediately, while the volume of exports increases only after a delay, as foreign buyers respond to lower prices.

The J Curve Shows That