Which of the following is a feature of the 'J-Curve' effect?
A. After a depreciation, the trade balance improves immediately
B. Depreciation has no effect on the trade balance
C. Appreciation always improves the trade balance
D. After a depreciation, the trade balance first deteriorates before improving
Answer: Option D
Solution (By JKSSB Mock Tests)
The J-curve describes the short-run deterioration of the trade balance following a depreciation (because quantities adjust slowly while prices change immediately), followed by a longer-run improvement.
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