Diagrams

Question 1

Draw the J Curve

What does it show

Answer 1

Measures the impact over time of a depreciation of the currency on the countries current account

Question 2

Why is there a time lag on the J curve
1.
2.
3.

Answer 2

1. Fixed in to contracts
   can’t immediately switch to a different supplier, may have to wait till contract is over
2. Inelastic domestic supply
3. Asymmetric information
   May not realise that you can buy the good cheaper elsewhere

Question 3

Draw the Harrod Domar Model

Answer 3

jj