You have just been hired by the Canadian government to analyze the following sce

Question

You have just been hired by the Canadian government to analyze the following scenario. Suppose the Canadian pharmaceutical industry is concerned with foreign prescription drug producers exporting their goods to Canada, a practice that hurts domestic producers. Lobbyists claim that implementing a tariff on imports would shrink the size of the deficit. The following exercise will help you understand how to analyze that claim.


A graph is shown with quantity of dollars on the horizontal axis and real exchange rate on the vertical axis. Does demand shift (left/right/stay same) and does the supply curve shift? (left/right/same)


Given this change, the value of the dollar (appreciates/depreciates)

Explanation / Answer

demand shifts. supply stays same.

appreciates.

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