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 interest rate changes
D) short-term price elasticity of exports and imports to the change in the economic growth

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 means that in the short term, a weaker currency may lead to an increase in the cost of imports and lower demand for exports. However, over time, the lower exchange rate can make a country's exports more competitive, leading to an improvement in its trade balance. This pattern is often represented by a "J-shaped curve."

The "J-Curve Effect" Shows