Consider this diagram of the market for foreign currency exchange. If the US government decides to increase import tariffs on imported steel, we could expect the A) Demand for dollars to shift from D₁ to D₂. B) Demand for dollars to shift from D₂ to D₁. C) Supply of dollars to increase. D) Supply of dollars to decrease.

Question

Quizplus · Accepted Answer

When the US government increases import tariffs on imported steel, the demand for domestically produced steel will increase. This will lead to an increase in demand for dollars in order to purchase the domestic steel. Therefore, the demand for dollars will shift to the right from D₁ to D₂.

Consider This Diagram of the Market for Foreign Currency Exchange