Back to Assignment Attempts: Keep the Highest:1 4. Problems and Applications Q4

Question

Back to Assignment Attempts: Keep the Highest:1 4. Problems and Applications Q4 An economist discussing trade policy in the New Republic wrote: "One of the benefits of the United States removing its trade restrictions [is] the gain to U.S. industries that produce goods for export. Export industries would find it easier to sell their goods abroad-even if other countries didnt follow our example and reduce their trade barriers. Which of the following statements is true about the effect of a reduction in restrictions of imports? Check all that apply. The real e-ange rate will remain unchanged. The equilibrium level of net exports will remain unchanged. The demand curve for dollars will shift to the left Imports will increase. O Net exports at any given real exchange rate will ncrease. Exports will increase. Grade It Now Save & Continue Continue without saving em(lat/servlet/iia action takeQuiz&quia; probQuid-Q4PLCOABO10100000038 121920070000&ctuforan; 00976ckom 151192011745 28

Explanation / Answer

Effect of a reduction in restrictions of imports would reduce net exports at given real exchange rate , thus shifts the demand curve for dollars to the left. The shift of the demand curve for dollars leads to a decline in real exchange rate, which will increase net exports. And net capital outflow is unchange and net exports equals net capital outflow, therefore,there is no change in equilibrium in net exports. But both exports and imports rises, exports industries would benefit.

Therefore, true statements regarding the effect of a reduction in restrictions of imports would :

The equilibrium level of net exports will remain unchanged.

The demand curve for dollars will shift to the left.

Imports will increase.

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