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

According to the J-curve effect, when a country's currency appreciates, its trade balance first moves towards surplus due to the immediate effect of lower import prices and increased export competitiveness. However, in the longer term, the trade balance moves towards deficit as the country's higher income level and increased purchasing power leads to a greater demand for imports. Therefore, the correct choice is B, which states that the trade balance first moves towards surplus, then later towards deficit.

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