The J-curve effect describes:
A) the inverse relationship between the current account and the growth rate
B) the tendency for the current account to deteriorate immediately after the depreciation of the domestic currency
C) the tendency for exporters to reduce the foreign price of exports following the appreciation of the domestic currency
D) the depreciation of the domestic currency immediately after a fall in the domestic inflation rate

Question

Quizplus · Accepted Answer

The J-curve effect refers to the phenomenon where a country's trade balance initially worsens following a depreciation of its currency, before eventually improving. This is because the prices of imports become more expensive immediately, while it takes time for exports to increase in response to the more competitive pricing.

The J-Curve Effect Describes