Explain what the J-curve is and why it occurs. What will be an ...

[audie]

Explain what the J-curve is and why it occurs.
 
  What will be an ideal response?

Question 2

An increase in the price of oil will cause which of the following in the medium run?
 
  A) no change in the level of output
  B) no change in the price level
  C) an increase in the unemployment rate
  D) a reduction in the interest rate
  E) none of the above

[mochi09]

Answer to Question 1

The J-curve illustrates graphically the dynamic adjustment of NX to a depreciation when the Marshall-Lerner condition does not hold initially but does hold eventually. If ML does not hold initially, a depreciation will cause NX to fall. Over time, the quantities of exports and imports will adjust causing NX to rise and eventually increase above its initial level. Tracing out the path of NX in this case resembles a J. Hence, the J-curve.

Answer to Question 2

C

[audie]

Thanks for the timely response, appreciate it

[scottmt]

Wow, this really help