The J-curve illustrates which of the following?
A) The effect of a devaluation on an economy's income.
B) The immediate increase in the current account after a devaluation.
C) The gradual adjustment of the trade balance in response to a devaluation.
D) The gradual adjustment of prices after currency devaluation.

Question

Quizplus · Accepted Answer

The J-curve illustrates the gradual adjustment of the trade balance in response to a devaluation. Initially, there may be a slight worsening of the trade balance, but over time, as exports become more competitive and imports become relatively more expensive, the trade balance tends to improve. This gradual adjustment is typically represented by a J-shaped curve on a graph.

The J-Curve Illustrates Which of the Following