The term 'J-Curve Effect' in international economics refers to:
A. Continuous deterioration of trade balance
B. Immediate improvement in trade balance after depreciation
C. No effect of exchange rate on trade balance
D. Initial worsening of trade balance after depreciation followed by improvement
Answer: Option D
Solution (By JKSSB Mock Tests)
The J-curve effect describes the pattern where a currency depreciation first worsens the trade balance (due to existing contracts) before improving it as quantities adjust.
Explanation:
Classical dichotomy refers to the separation of real and nominal variables, with money being neutral in the long run and affecting only the price level, not real output or employment.
Explanation:
Creative accounting (or fiscal gimmickry) involves the use of accounting devices that temporarily improve reported deficit or debt figures without a corresponding improvement in the true intertemporal fiscal position.
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