Answer-The J-Curve effect describes:

Due to pre-existing contracts and slow adjustment of quantities elasticities are lower in the short run, a depreciation may initially worsen the trade deficit imports cost more, volumes adjust slowly before improving ita path resembling the letter J.

Question

The J-Curve effect

describes:

A The long-run relationship between inflation and unemployment.

B The short-run deterioration and long-run improvement in the trade balance after a currency depreciation.

C The path of investment over the business cycle.

D The relationship between savings and interest rates.

E None of these

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The J-Curve effect

Solution