The J-curve suggests what initial effect of a currency's depreciation on the current account?

The J-curve concept refers to the short-term and long-term effects of currency depreciation on a country's current account balance. Initially, when a currency depreciates, imported goods become more expensive, while exported goods become cheaper for foreign buyers. However, it takes time for the quantities of imports and exports to adjust in response to price changes.

In the short term, the immediate effect of depreciation often results in a worsening current account balance. This is because the higher prices of imports can lead to increased spending on foreign goods before export volumes rise significantly due to the depreciation. Consumers and businesses may not switch their purchasing habits immediately; thus, the current account may show a deficit. Over time, as exports start to increase due to the competitive pricing and import consumption adjusting to higher prices, the current account starts to improve.

This initial worsening followed by eventual improvement is the essence of the J-curve, illustrating how economic adjustments do not occur instantly but take time, creating a temporary negative impact before moving towards a more favorable balance.