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Question: Assume that the value of the currency of country J rises by 10% one year. Its price elasticity of imports is -0.6 and its price elasticity of exports is -0.7. Imports of raw materials and parts account for 30% of the total cost of imports. Trace the J-curve effect for this country, assuming no repercussion effect. If exports account for 20% of its GDP and imports account for 15%, and a 1% change in the current account balance changes the value of the currency by 2%, how much would the currency rise or fall in the following year?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M93115077

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