According to the J curve,the rapid depreciation in the dollar from 1985 to 1987 caused net exports to
A)rise in the short run and fall in the long run.
B)rise in the short run and rise further in the long run.
C)fall in the short run and rise in the long run.
D)fall in the short run and fall further in the long run.

Question

Quizplus · Accepted Answer

According to the J curve, a rapid depreciation in a currency leads to a temporary worsening of a country's trade balance (fall in net exports) in the short run due to increased import costs and decreased export competitiveness. However, over the long run, the trade balance should improve (rise in net exports) as domestic producers become more competitive and exporters benefit from the lower currency value. Therefore, in this case, the rapid depreciation in the dollar from 1985 to 1987 likely caused net exports to fall in the short run and rise in the long run.

According to the J Curve,the Rapid Depreciation in the Dollar