When a country imposes an import quota,its exchange rate
A)rises because the supply of dollars in the market for foreign-currency exchange falls.
B)falls because the supply of dollars in the market for foreign-currency exchange rises.
C)rises because the demand for dollars in the market for foreign-currency exchange rises.
D)falls because the demand for dollars in the market for foreign-currency exchange falls.

Question

Quizplus · Accepted Answer

An import quota reduces the quantity of imports, leading to a decrease in the supply of foreign currency and an increase in the demand for domestic currency, causing the exchange rate to rise.

When a Country Imposes an Import Quota,its Exchange Rate