J Curve

DEFINITION of 'J Curve'

A theory stating that a country's trade deficit will worsen initially after the depreciation of its currency because higher prices on foreign imports will be greater than the reduced volume of imports.

BREAKING DOWN 'J Curve'

The effects of the change in the price of exports compared to imports will eventually induce an expansion of exports and a cut in imports--which, in turn, will improve the balance of payments.

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RELATED FAQS
  1. What is a trade deficit and what effect will it have on the stock market?

    A trade deficit, which is also referred to as net exports, is an economic condition that occurs when a country is importing ... Read Answer >>
  2. Why do some analysts argue that trade deficits aren't bad for the economy?

    Understand the reasons why trade deficits, reviled by many economic analysts, are not always a bad thing in the eyes of many ... Read Answer >>
  3. Is a current account deficit good or bad for the economy?

    Take a deeper look at the nature of a country's current account balance, and see why trade deficits are neither good nor ... Read Answer >>
  4. How does comparative advantage influence the balance of payments?

    Learn how comparative advantage affects a country's balance of exports and imports, which in turn influences the overall ... Read Answer >>
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