The J-Curve Effect States That

question 10

Multiple Choice

The J-curve effect states that

• A)appreciation of a currency always worsens the trade balance unless it is accompanied by an expenditure-reducing policy
• B)depreciation of a currency immediately improves the trade balance
• C)depreciation of a currency may initially worsen the trade balance but will ultimately improve it
• D)in the short run the physical volume of trade is affected by a currency depreciation, but in the long run the change in trade is offset by the change in relative prices
• E)large exchange rate changes may lead to changes in trade patterns that persist even after exchange rates return to their initial level

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