J-Curve Effect in Trade Balance After Devaluation

Steps:

• Identify T as the point of currency devaluation in the diagram.
• Note that devaluation occurs exactly at T, initiating the process.
• Observe the initial post-T phase where trade balance worsens due to price inelasticity in imports/exports.
• Recognize the later recovery where balance improves, forming the "J" shape.

Why B is correct:

• Devaluation applies at T (implementation point), but does not apply immediately after T (trade balance deteriorates before elasticities adjust, per Marshall-Lerner condition).

Why the others are wrong:

• A: Ignores devaluation at T.
• C: Reverses timing; devaluation starts at T, not after.
• D: Falsely assumes immediate positive effect after T.

Final answer: B