## What is the J-curve effect?

The J-curve effect is often cited in economics to describe, for instance, the way that a country’s balance of trade initially worsens following a devaluation of its currency, then quickly recovers and finally surpasses its previous performance. …

## What causes the J-curve effect?

The J Curve is an economic theory that says the trade deficit will initially worsen after currency depreciation. Then, as quantities adjust, there is an increase in imports as exports remain static, and the trade deficit shrinks or reverses into a surplus forming a “J” shape.

## What does the Marshall-Lerner condition represent?

The Marshall Lerner Condition shows the conditions under which a change in the exchange rate of a country’s currency leads to an improvement or worsening of a country’s balance of payments.

## What is the main assumption of elasticity approach of Marshall Lerner?

The Marshall-Lerner condition assumes perfectly elastic supplies of exports and imports. But this assumption is unrealistic because the country may not be in a position to increase the supply of its exports when they become cheap with devaluation of its currency.

## What are the disadvantages of a J-curve?

The J Curve effect a depreciation in the exchange rate can cause a deterioration of the current account in the short-term (because demand is inelastic). However, in the long-term, demand becomes more price elastic and therefore, the current account begins to improve.

## What does J-shaped curve indicate?

The J-shaped of growth curve for the population growth in a species indicates the exponential form of growth. There is rapid increase in the growth rate due to the favorable factors.

## Why is the Marshall-Lerner condition important?

Marshall-Lerner (M-L) condition is, perhaps, the most important theory in international trade study. It states that a country can improve trade balance by a devaluation of the local currency, if the sum of its export and import elasticities, in absolute value, is greater than one.

## What if the Marshall-Lerner condition does not hold?

Answer: The BOT will decrease. As the Marshall-Lerner condition does not hold, a devaluation of domestic currency will decrease the BOT and therefore worsen the BOP.

## What is J-curve and S curve?

An exponential growth pattern (J curve) occurs in an ideal, unlimited environment. A logistic growth pattern (S curve) occurs when environmental pressures slow the rate of growth.

## What is the productivity J-curve?

The Productivity J-curve explains why a productivity paradox can be both a recurrent and expected phenomenon when important new technologies are diffusing throughout the economy. Adjusting productive processes to take advantage of new types of capital requires the kind of investments the statistics miss.

## Is the example of J shape growth curve?

The best example of exponential growth is seen in bacteria. Bacteria are prokaryotes that reproduce by prokaryotic fission. Exponential population growth: When resources are unlimited, populations exhibit exponential growth, resulting in a J-shaped curve.

## What is the difference between the J curve and S curve?

The J curve, or exponential growth curve, is one where the growth of the next period depends on the current period’s level and the increase is exponential. The S curve, or logistic growth curve, starts off like a J curve, with exponential growth rates.

## How is the Marshall Lerner condition related to the J curve?

The phenomenon of the domination of the volume effect over the price effect in the long run is the Marshall-Lerner condition. If plotted over time, the trade response graph yields a J-resembling line, thus the J-curve terminology. Conventionally, the J-curve estimation has been estimated using time-series econometrics.

## Which is a condition of the Marshall-Lerner condition?

The Marshall–Lerner condition (after Alfred Marshall and Abba P. Lerner) is the condition that an exchange rate devaluation or depreciation will only cause a balance of trade improvement if the absolute sum of the long-term export and import demand elasticities is greater than unity.

## How is the J curve related to the current account?

The J-Curve is related to the Marshall-Lerner condition, which states: If (PED x + PED m > 1) then a devaluation will improve the current account. The J-Curve is an example of how time lags can affect economic policy. It also shows the link between microeconomic principles (elasticity) and macroeconomic outcomes (current account)

## How does the Marshall Lerner condition affect the trade balance?

The immediate effect is to hurt the U.S. trade balance because if the quantities of imports and exports stay the same the value of exports is still \$100 million but imports will now cost \$110 million, a trade deficit of \$10 million.

What is the J-curve effect? The J-curve effect is often cited in economics to describe, for instance, the way that a country’s balance of trade initially worsens following a devaluation of its currency, then quickly recovers and finally surpasses its previous performance. … What causes the J-curve effect? The J Curve is an economic theory…