Which of the following helps explain how the protective stimulus of a trade tariff can be diminished?
A) Any increase in net exports drives both GDP and interest rates higher and thus causes domestic currency to appreciate and reduce the price increase associated with the tariff.
B) Exporters from abroad try to stabilize the international prices of their goods, even in the face of a tariff.
C) Smaller than expected increases in import prices undermine the anticipated reduction in total imports.
D) All of the above are at least partial explanations.
E) Only b and c apply, because an increase in net exports should make both GDP and the interest rate fall.

Question

Quizplus · Accepted Answer

All the options provided explain how the protective stimulus of a trade tariff can be diminished. Option A discusses the macroeconomic effects of increased net exports leading to currency appreciation, which can counteract the price increases tariffs aim to create. Option B highlights the efforts of foreign exporters to maintain stable international prices despite tariffs, and Option C points out the possibility of smaller-than-expected increases in import prices, which can undermine the goal of reducing imports.

Which of the Following Helps Explain How the Protective Stimulus