In 2002,the United States imposed restrictions on the importation of steel into the United States.The open-economy macroeconomic model shows that such a policy would
A)lower the real exchange rate and increase net exports.
B)lower the real exchange rate and have no effect on net exports.
C)raise the real exchange rate and decrease net exports.
D)raise the real exchange rate and have no effect on net exports.

Question

Quizplus · Accepted Answer

Import restrictions like tariffs or quotas tend to raise the real exchange rate by making domestic goods relatively more expensive compared to foreign goods. However, they do not affect the overall level of net exports because the reduction in imports is offset by a decrease in exports due to the higher real exchange rate.

In 2002,the United States Imposed Restrictions on the Importation of Steel