According to the "J-curve effect," a weakening of the U.S. dollar relative to its trading partners' currencies would result in an initial ____ in the current account balance, followed by a subsequent ____ in the current account balance.
A) decrease; increase
B) increase; decrease
C) decrease; decrease
D) increase; increase

Question

​According to the "J-curve effect," a weakening of the U.S. dollar relative to its trading partners' currencies would result in an initial ____ in the current account balance, followed by a subsequent ____ in the current account balance.
A) ​decrease; increase
B) ​increase; decrease
C) ​decrease; decrease
D) ​increase; increase

Quizplus · Accepted Answer

The "J-curve effect" suggests that a weakening of the U.S. dollar initially leads to a worsening of the current account balance due to higher prices for imports and unchanged export volumes. Over time, as demand adjusts to the new prices, exports increase and imports decrease, leading to an improvement in the current account balance.

​According to the "J-Curve Effect," a Weakening of the U

According to the "J-Curve Effect," a Weakening of the U