Due to the J-curve phenomenon and incomplete currency pass-through, a depreciation of the local currency is likely to result in an increase in which of the following over the long term?

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A short-term rise in trade surplusA long-term increase in trade surplusA short-term growth in trade deficitA long-term expansion of the trade deficitNo significant change in trade balance

Explanation

When the domestic currency depreciates, the J-curve effect and partial pass-through cause the trade balance to initially worsen before improving. Over the long run, the trade deficit tends to widen due to delayed adjustments in trade volumes and prices.