Because of the J-curve effect and partial currency pass-through,a depreciation of the domestic currency tends to increase the size of a:
A) Trade surplus in the short run
B) Trade surplus in the long run
C) Trade deficit in the short run
D) Trade deficit in the long run

Question

Quizplus · Accepted Answer

The J-curve effect suggests that a currency depreciation initially worsens the trade balance (increasing the trade deficit) before improving it, due to contracts and price adjustments taking time to reflect the new exchange rates.

Because of the J-Curve Effect and Partial Currency Pass-Through,a Depreciation