The J-curve illustrates which of the following?
A) the effects of depreciation on the home country's economy
B) the immediate increase in current account caused by a currency depreciation
C) the gradual adjustment of home prices to a currency depreciation
D) the short-term effects of depreciation on the current account
E) the Keynesian view of international trade dynamics

Question

Quizplus · Accepted Answer

The J-curve illustrates the short-term effects of currency depreciation on the current account. Initially, the current account balance worsens due to the higher cost of imports and lower demand for exports. However, over time, the balance improves as exports become more competitive and imports become relatively cheaper. The shape of the curve resembles the letter "J."

The J-Curve Illustrates Which of the Following