The J-curve effect in international trade

Steps:

• Identify J effect as the J-curve phenomenon in economics, describing trade balance response to currency devaluation.
• Note it involves short-term worsening followed by long-term improvement in balance of payments.
• Connect to exchange rate changes impacting import/export prices and quantities.
• Match to choice A, as it specifies balance of payment effects from exchange rate shifts.

Why A is correct:

• The J-curve effect, per Mundell-Fleming model, shows devaluation first increases import costs more than export revenues due to price elasticities, deteriorating the current account initially.

Why the others are wrong:

• B: Reverses causality; J effect stems from exchange rate changes, not vice versa.
• C: Relates to tariff impacts on trade volumes, unrelated to exchange rate dynamics.
• D: Describes static comparative advantage benefits, not dynamic post-devaluation adjustments.

Final answer: A