J-curve effect Watch

Tallon
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Is the Y axis "change in current account" or "current account" or "effect on current account"? So many soruces tell me differently. because surely change in cc would start at zero then move, whilst current account could be anywhere, you know?


feel embarrassed starting so many threads here :\
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Magic Dust
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(Original post by Tallon)
Is the Y axis "change in current account" or "current account" or "effect on current account"? So many soruces tell me differently. because surely change in cc would start at zero then move, whilst current account could be anywhere, you know?


feel embarrassed starting so many threads here :\
I haven't seen you start any other then this, and that's what this forum is for anyway Don't feel embarrassed!

I don't know what a J curve is, so I am not really much help... But I found the wiki here. Although, from what I can see it might not be very helpful. Sorry. Which subject is this for?
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acp11
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(Original post by Tallon)
Is the Y axis "change in current account" or "current account" or "effect on current account"? So many soruces tell me differently. because surely change in cc would start at zero then move, whilst current account could be anywhere, you know?


feel embarrassed starting so many threads here :\
I believe it's "current account" therefore allowing the possibility of a negative number to indicate a deficit.
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paul_blakeman
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Yes it is the current account. Do not get too bogged down with the numbers, it is more a representation of what happen. It is the same with the Lafffer curve, which implies that a 50% tax rate will always bring about the most tax revenue. See the diagram as an aid to an explanation, concentrating on the shape as opposed to the realism of the data. Also, check out the UK's recent trade deficit if you want to see it hold true! Despite the UK's relatively weak pound, we have seen our current account actually increase it's deficit. Worth a quick look
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Magic Dust
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(Original post by acp11)
I believe it's "current account" therefore allowing the possibility of a negative number to indicate a deficit.
Sorry, but your signature made ma laugh so much! Remind me to rep you tomorrow
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Tallon
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(Original post by paul_blakeman)
Yes it is the current account. Do not get too bogged down with the numbers, it is more a representation of what happen. It is the same with the Lafffer curve, which implies that a 50% tax rate will always bring about the most tax revenue. See the diagram as an aid to an explanation, concentrating on the shape as opposed to the realism of the data. Also, check out the UK's recent trade deficit if you want to see it hold true! Despite the UK's relatively weak pound, we have seen our current account actually increase it's deficit. Worth a quick look

So it's current account? In my textbook it's "effect on current account" but it starts negative, not at the origin :\.
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goldsilvy
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(Original post by Tallon)
So it's current account? In my textbook it's "effect on current account" but it starts negative, not at the origin :\.
as it's assumes that current account is in deficit.
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acp11
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(Original post by Magic Dust)
Sorry, but your signature made ma laugh so much! Remind me to rep you tomorrow
Haha, thanks, will try to remember to remind you.
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Tallon
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(Original post by goldsilvy)
as it's assumes that current account is in deficit.

also, the curve only starts being drawn after time moves on from 0. is that just bad curve drawing? Should start from somewhere in the y axis and move right?
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goldsilvy
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(Original post by Tallon)
also, the curve only starts being drawn after time moves on from 0. is that just bad curve drawing? Should start from somewhere in the y axis and move right?
This is more or less how I draw J-curve effect:
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Tallon
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(Original post by goldsilvy)
This is more or less how I draw J-curve effect:

Why does the line only start being drawn after time has moved on a bit? Surely the line should come from the y axis where time = 0?
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Tallon
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goldsilvy
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(Original post by Tallon)
Why does the line only start being drawn after time has moved on a bit? Surely the line should come from the y axis where time = 0?
Maybe because no country starts with a current account deficit/surplus? Only after some time these occur. Eee ... maybe?
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wubwoo
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(Original post by Tallon)
Why does the line only start being drawn after time has moved on a bit? Surely the line should come from the y axis where time = 0?
It's just a sketch - These diagrams are not meant to be technical or rigorous because we have no data to plot.

This is done in many textbooks, and just shows roughly what the effect would be. If we were drawing a correct graph, the line would start at 0 on the x-axis and at the relevant starting balance of payments level on the y-axis.

However, this is just a short non-technical sketch - as said before, don't get bogged down in the technicalities - as long as you can explain this effect and show it diagrammatically, you should be fine.

Also, for the "J-curve" style graph, it would have to be current account or current account level on the y-axis.
If it were "change in current account" then the "J" would be centered around 0 - i.e at time 0, change in current account is 0!
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