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Due to the J-curve phenomenon and incomplete currency pass-through, a depreciation of the local currency is likely to result in an increase in which of the following over the long term?

Exchange-Rate Adjustments And The Balance of MCQs for PPSC, FPSC, NTS, and Pakistan government job tests. Select an option below, then read the explanation.

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Exchange-Rate Adjustments And The Balance of

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Exchange-Rate Adjustments And The Balance ofeconomics-mcqs › exchange-rate-adjustments-and-the-balance-of
Published
1 Jun 2019
Last updated
28 May 2026

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Explanation

When the domestic currency depreciates, the J-curve effect and partial pass-through cause the trade balance to initially worsen before improving. Over the long run, the trade deficit tends to widen due to delayed adjustments in trade volumes and prices.

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Practice related questions from the same subject.

  1. 1.What does empirical research suggest about the impact of currency depreciation on a country's trade balance?
  2. 2.What term describes how quickly domestic and foreign prices respond to a devaluation in the short term?
  3. 3.The shorter the ______ period for pass-through, the ______ the beneficial balance of trade effects on the volume of goods exchanged will be observed.
  4. 4.If the United Kingdom devalues the pound and both exports and imports are measured in pounds, what happens to the UK's trade balance during the currency adjustment period?
  5. 5.When export agreements are denominated in foreign currency and import agreements are in domestic currency, what is the impact of a dollar depreciation during the contract period?
  6. 6.What happens to U.S. import prices when there is complete currency pass-through following a 10% depreciation of the dollar?
  7. 7.In a world with only two countries, if Japan reduces the value of the yen by 20% and West Germany lowers the mark's value by 15%, what is the outcome for the yen relative to the mark?
  8. 8.How do adjustments in foreign production costs and profit margins affect the timeline of a U.S. dollar depreciation's impact on the trade deficit?
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