The J Curve Effect Means That Import Prices Are Higher

question 27

Multiple Choice

The J curve effect means that import prices are higher, thus revenues paid out increase while export prices are lower and incoming revenues decrease. Therefore, after a currency depreciation:

• A) the trade balance will improve, then decline, then improve, and then decline, appearing to be a series of J shapes.
• B) the trade balance will increase, then decrease, then jump higher, which economists call the J curve effect.
• C) the nation will cut back on imports immediately causing the trade balance to improve, which gives the curve an inverted J shape.
• D) the trade balance decreases and then increases over time giving the curve a J shape.

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Definitions:

Parallel Circuit

An electrical circuit configuration where multiple paths are available for current flow, resulting in each component having the same voltage applied.

Inductor Value

The measure of an inductor's ability to store energy in a magnetic field, usually identified by its inductance, measured in henries (H).

Inductive Current

Current that is induced by a changing magnetic field, often described in terms of electromagnetic induction or the inductance property in a circuit.

Inductive Reactance

The opposition to the change of current flow due to inductance in an AC circuit, measured in Ohms.