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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