Explain the J curve thing

Economics

ScanSolve AI Answer

The J-curve effect describes how a country's trade balance (exports minus imports) initially worsens after a currency depreciation or devaluation, before eventually improving. This happens because in the short term, import prices rise immediately while the volume of imports and exports adjusts slowly due to existing contracts and consumer habits. Over time, as exports become cheaper and imports more expensive, the volume of trade adjusts, leading to an improvement in the trade balance, forming a "J" shape on a graph.

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