In a country, the Marshall-Lerner condition for an improvement in the trade balance is met in the long run, although quantities of imports and exports take a long time to react to changes in price. The government devalues its currency in order to cut its trade deficit. Which curve shows the likely pattern of the trade balance?
- AA (immediate improvement then decline)
- BB (initial deterioration then gradual improvement)
- CC (small immediate improvement, then stable)
- DD (steady improvement immediately)