J-Curve and Marshall-Lerner Post-Devaluation

Steps:

• Identify J-curve: current account deficit worsens initially after devaluation due to price effects before quantity adjustments.
• Note original deficit is $300m; short-run worsening means deficit exceeds$300m.
• For long-run Marshall-Lerner satisfaction, elasticities sum >1, so deficit improves (decreases) from short-run level.
• Match choices to pattern: short-run >$300m deficit, long-run <$ short-run but still a deficit.

Why C is correct:

• Shows short-run deficit of $600m (worsens from$300m, J-curve) and long-run $400m (improves via elasticities >1 per Marshall-Lerner, reducing deficit size).

Why the others are wrong:

• A: Deficits of $200m then$100m show immediate improvement, no initial J-curve worsening.
• B: $200m then$400m indicate short-run improvement followed by worsening, opposite of J-curve.
• D: Identical to C but listed separately; no unique distinction, fails to differentiate.

Final answer: C