Question

Which of the following is likely to occur in the quantity adjustment phase of the J-Curve adjustment path?

		Both imports and exports become relatively more expensive.
		Both imports and exports become relatively less expensive.
		The balance of trade gets worse.
		Imports become relatively more expensive, and exports become relatively less expensive.
		None of the above

Answer 1

Answer : Imports become relatively more expensive, and exports become relatively less expensive

The J-curve effect describes the impact of devaluation of a currency on the balance of trade of the country. According to J-curve, the country’s trade deficit initially worsens as a result of the devaluation of the currency, but quickly recovers from the situation. Since the currency is devalued, the imports will be expensive and exports will be less expensive.

In J-curve, both imports and exports will be neither expensive nor cheap.

Worsening of balance of trade also will not occur in J-curve because, according to the curve, it will be recovered soon.