In the short term, demand for imports is frequently price inelastic. As time passes, demand usually becomes more price elastic. What does this help to explain?
- Awhy a fall in the exchange rate causes a deficit on the current account of the balance of payments to increase before decreasing
- Bwhy a fall in the exchange rate causes inflation to rise before falling
- Cwhy a rise in the exchange rate causes a surplus on the current account of the balance of payments to decrease before increasing
- Dwhy a rise in the exchange rate causes the terms of trade to worsen before improving