The short run deterioration and long run improvement of the current account following a real depreciation of currency is called
A) the J curve
B) the Laffer curve
C) the Phillips curve
D) the IS curve
E) the LM curve

Question

Quizplus · Accepted Answer

The J curve refers to the short-run worsening of the current account balance following a real depreciation of the currency due to the temporary increase in the cost of imports and decrease in the competitiveness of exports. However, in the long run, the current account balance improves as the depreciation makes exports relatively cheaper and imports relatively more expensive. The shape of this trend resembles the letter "J". The other choices, B) the Laffer curve, C) the Phillips curve, D) the IS curve, and E) the LM curve, are unrelated to the short-run and long-run effects of a real depreciation of currency on the current account balance.

The Short Run Deterioration and Long Run Improvement of the Current