The J curve effect is the initial worsening of the U.S. trade balance due to a weakening dollar because of established trade relationships that are not easily changed; as the dollar weakens, the dollar value of imports initially rises before the U.S. trade balance is improved.

Question

Quizplus · Accepted Answer

The J curve effect is a real phenomenon where the trade balance initially worsens due to a depreciating currency, but eventually improves as exports become more competitive and imports become more expensive. This happens because of established trade relationships that cannot be easily changed in the short term, leading to an initial surge in the dollar value of imports as the currency depreciates, before the U.S. trade balance gradually improves.

The J Curve Effect Is the Initial Worsening of the U.S