An export subsidy should have the opposite effect of
A) A government budget deficit.
B) Capital flight.
C) An increase in private saving.
D) A tariff.

Question

Quizplus · Accepted Answer

An export subsidy and a tariff have opposite effects. A tariff is a tax on imported goods which raises the price of those goods, making them less competitive with domestically produced goods. In contrast, an export subsidy is a payment made by the government to domestic producers of a good or service for each unit exported. This makes exports cheaper and more competitive in foreign markets, thereby increasing demand for them. Therefore, a tariff and an export subsidy should have opposite effects.

An Export Subsidy Should Have the Opposite Effect of