According to the J-curve concept, there are multiple potential outcomes on the balance of payments from a currency depreciation.Which of the following is NOT one of those outcomes?
A) The effects of a currency depreciation are transmitted primarily via the income adjusted mechanism.
B) The effects of a currency depreciation are likely to be adverse or negative in the short run.
C) In the long run, the effects of a currency depreciation are likely to be positive given favorable elasticity conditions.
D) The effects of a currency depreciation may be influenced by offsetting devaluations made by other countries.

Question

Quizplus · Accepted Answer

The J-curve concept states that a currency depreciation leads to a short-term worsening of the balance of payments, followed by a long-term improvement as the trade balance adjusts to the new relative prices. This adjustment can occur through several mechanisms, including the income adjusted mechanism, the expenditure switching mechanism, and the Marshall-Lerner condition. Therefore, choice A is not one of the potential outcomes of a currency depreciation according to the J-curve concept.

According to the J-Curve Concept, There Are Multiple Potential Outcomes