Asked by Adrian Barrett on May 23, 2024
Verified
In 2002, the United States placed higher tariffs on imports of steel. According to the open-economy macroeconomic model this policy reduced imports
A) into the United States and made U.S.net exports rise.
B) into the United States and made the net supply of dollars in the foreign exchange market shift right.
C) of steel into the United States, but reduced U.S.exports of other goods by an equal amount.
D) of steel into the United States and increased U.S.exports of other goods by an equal amount.
Open-Economy Macroeconomic Model
A model that analyzes an economy that engages in international trade, considering the impact of exports, imports, and capital flows.
Tariffs
Tariffs are taxes imposed by a government on imported goods and services to protect domestic industries, raise revenue, or influence trade balance.
Net Exports
The value of a country's exports minus the value of its imports, a key component in calculating a nation's GDP.
- Grasp the significance of trade policies, including tariffs and quotas, on variables like the exchange rate, trade balance, and net exports.
Verified Answer
TN
Tayyaba NaqviMay 26, 2024
Final Answer :
C
Explanation :
The open-economy macroeconomic model suggests that when a country imposes tariffs on imports (like steel in this case), it reduces those imports but also leads to a reduction in exports of other goods by an equal amount. This is due to the balance of payments; a decrease in imports must be matched by a decrease in exports, as the exchange rate adjusts to keep the trade balance in equilibrium.
Learning Objectives
- Grasp the significance of trade policies, including tariffs and quotas, on variables like the exchange rate, trade balance, and net exports.