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Economics (AS & A Level) · May / June 2024 · Paper 31 · Question 26

9708Exchange rates

What does the J-curve effect show?

  1. AA successful currency depreciation requires the sum of the import and export elasticities of demand to be greater than 1.
  2. BAfter a currency devaluation, the current account is likely to get worse before it gets better.
  3. CIn the short run, the demand for imports and exports tends to be price elastic.
  4. DThe value of the terms of trade will affect the success of a currency's devaluation.

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Correct answer: B. After a currency devaluation, the current account is likely to get worse before it gets better.

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