If tariffs are used in an attempt to improve country A's balance of trade, and if exchange rates are flexible, the imposition of the tariffs will cause __________ in the value of A's currency relative to other currencies and, as a consequence, A's exports will __________.
A) a decrease; decrease
B) a decrease; increase
C) an increase; decrease
D) an increase; increase

Question

Quizplus · Accepted Answer

Tariffs can make imports more expensive and reduce the trade deficit, potentially increasing demand for the country's currency and its value. However, a stronger currency makes exports more expensive for other countries, potentially decreasing exports.

If Tariffs Are Used in an Attempt to Improve Country