The Existence of the J- Curve Suggests That a Real

question 26

Multiple Choice

The existence of the J- curve suggests that a real depreciation will cause:

• A) an initial increase in economic activity.
• B) an initial reduction in the demand for domestic goods.
• C) a final increase in net exports.
• D) ambiguous effects on net exports.
• E) an initial increase in net exports.

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Definitions:

Externality

A consequence of an industrial or commercial activity which affects other parties without this being reflected in market prices.

Property Rights

Legal rights to use, control, and benefit from a resource.

Free-Rider Problem

A situation where individuals consume a public good without contributing to its cost, leading to underprovision or overuse.

Coase Theorem

A principle that asserts that if property rights are clearly defined and transaction costs are low, private negotiations will lead to the efficient resolution of disputes regardless of initial distribution of rights.