(b) What is the J-Curve effect and how is it related to M-L condition?(c) In this part, you are to RELATE the M-L condition to the shape of the demand andsupply of the currency, below. Suppose the foreign exchange market isrepresented by the following diagram where there are only two countries, Canadaand Euro zone, trading goods and services with each other.터CS/E1.8DES€1.41.0QOQ€(D€): demand for euro by Canadians = stands for Canada's payments for itsimports of goods and services, and(S€): supply of euro by Europeans = stands for Canada's receipt from its exportsof goods and services. For simplicity, there are no capital/financial accounttransactions.Show that the M-L condition is satisfied in this diagram.

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(b) What is the J-Curve effect and how is it related to M-L condition?

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Question

(b) What is the J-Curve effect and how is it related to M-L condition?
(c) In this part, you are to RELATE the M-L condition to the shape of the demand and
supply of the currency, below. Suppose the foreign exchange market is
represented by the following diagram where there are only two countries, Canada
and Euro zone, trading goods and services with each other.
터CS/E
1.8
DE
S€
1.4
1.0
QO
Q€
(D€): demand for euro by Canadians = stands for Canada's payments for its
imports of goods and services, and
(S€): supply of euro by Europeans = stands for Canada's receipt from its exports
of goods and services. For simplicity, there are no capital/financial account
transactions.
Show that the M-L condition is satisfied in this diagram.

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