Exam (elaborations)

InternationalEconomy IPC3702

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Course
International Political Economy IPC3702 (442)

Institution
University Of South Africa

ully explain the meaning of the ‘J curve effect’ and the ‘marshall-lerner condition.’ How are these two concepts related? Discuss empirical evidence on the existence of the ‘marshall-lerner condition’ ully explain the concepts of ‘trade creation’ and ‘trade diversion.’ Illustra...

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Uploaded on October 31, 2022
Number of pages 4
Written in 2022/2023
Type Exam (elaborations)
Contains Questions & answers

international economics
international political economy ipc3702

REG NO: A110/14052/16

UNIT CODE: ECON 442

UNIT NAME: INTERNATIONAL ECONOMICS

DEPARTMENT: ECONOMICS

FACULTY: FASS

DATE:31/10/2020

TASK: CAT

1.carefully explain the meaning of the ‘J curve effect’ and the ‘marshall-lerner condition.’ How are these two
concepts related? Discuss empirical evidence on the existence of the ‘marshall-lerner condition’

The J-curve effect refers to a "J" shaped section of a time-series graph in which the curve falls into negative
territory and then gradually rises to a higher level than before the decline.

A J-curve is a trendline that shows an initial loss immediately followed by a sharp gain. In a chart, this pattern of
activity would have the shape of a capital "J".

Marshall lerner condition In international trade, a theory stating that if the sum of price elasticity of a country's
exports and the price elasticity of its imports is greater than one, a devaluation of that country's
currency will improve its balance trade.Devaluation does not improve the balance of trade if the sum is any lower.

Relationship of the concepts

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). 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.

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