The "J-curve effect" shows
A)the initial deterioration and the eventual improvement of a country's trade balance following a currency depreciation.
B)the initial improvement and the eventual depreciation of a country's trade balance following a currency depreciation.
C)the trade balance's lack of responsiveness to the exchanges rate changes.
D)none of the above

Question

Quizplus · Accepted Answer

The J-curve effect shows the initial deterioration and eventual improvement of a country's trade balance following a currency depreciation. This is because in the short run, imports become more expensive and exports do not see an immediate increase in demand. However, over time, the country's exports become more competitive and demand increases, leading to an improved trade balance.

The "J-Curve Effect" Shows