According to the J-curve effect,when the exchange value of a country's currency appreciates,the country's trade balance:
A) First moves toward deficit,then later toward surplus
B) First moves toward surplus,then later toward deficit
C) Moves into deficit and stays there
D) Moves into surplus and stays there

Question

Quizplus · Accepted Answer

The J-curve effect suggests that when a country's currency value appreciates, its trade balance initially worsens and moves toward a deficit due to the lag time needed for domestic consumers to adjust their consumption patterns and for foreign businesses to find new suppliers. However, over time, as domestic producers become more competitive, exports increase and imports decrease, leading to an improvement in the trade balance and moving it toward a surplus. Therefore, the correct choice is B, as the trade balance first moves toward a surplus and then toward a deficit.

According to the J-Curve Effect,when the Exchange Value of a Country's