The J-Curve Effect States That

Multiple Choice

The J-curve effect states that

A) appreciation of a currency always worsens the trade balance unless it is accompanied by an expenditure-reducing policy
B) depreciation of a currency immediately improves the trade balance
C) depreciation of a currency may initially worsen the trade balance but will ultimately improve it
D) in the short run the physical volume of trade is affected by a currency depreciation, but in the long run the change in trade is offset by the change in relative prices
E) large exchange rate changes may lead to changes in trade patterns that persist even after exchange rates return to their initial level