BW

2)            Explain the marshal Lerner condition

has been cited as a technical reason why a reduction in value of a nation's currency need not immediately improve its balance of payments.[1] The condition states that, for a currency devaluation to have a positive impact on trade balance, the sum of price elasticity of exports and imports (in absolute value) must be greater than 1.

1)            Illustrate and explain the J-curve effect

In economics, the 'J curve' refers to the trend of a country’s trade balance following a devaluation or depreciation under a certain set of assumptions. A devalued currency means imports are more expensive, and on the assumption that the volume of imports and exports change little immediately, this causes a depreciation of the current account (a bigger deficit or smaller surplus).