The Shape of the Curve That Shows the Effect of Currency

question 21

Multiple Choice

The shape of the curve that shows the effect of currency depreciation upon a country's current account balance over time, with the curve itself being known as the __________, reflects the fact that short-run demand elasticities are sufficiently __________ than long- Run elasticities to generate this particular shape. (Ignore the negative sign on the Elasticities.)

• A) J curve; lower
• B) J curve; higher
• C) supply curve of foreign exchange; lower
• D) supply curve of foreign exchange; higher

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Definitions:

Arithmetic Average

The sum of a series of numbers divided by the count of that series of numbers, commonly used to calculate the mean value of datasets.

Geometric Average

A method of calculating the average rate of return of a set of values by multiplying them together and taking the nth root, where n is the number of values, typically used for investment growth rates.

Compound Return

The rate at which an investment grows over time, taking into account the effect of compounding.

Holding Period Return

The total return received from holding an asset or portfolio of assets over a period of time, typically expressed as a percentage.