Suppose Canada imposes an import quota on beer. Which statement best describes the most likely effects of this quota?
A) Canadian exports increase, and the dollar appreciates.
B) Canadian exports increase, and the dollar depreciates.
C) Canadian exports decrease, and the dollar appreciates.
D) Canadian exports decrease, and the dollar depreciates.

Question

Quizplus · Accepted Answer

An import quota on beer would likely reduce the supply of foreign beer in Canada, potentially increasing the demand for domestic alternatives. This could decrease the demand for foreign currency to pay for imports, appreciating the Canadian dollar. However, it might not directly increase exports, as the measure is protective of the domestic market rather than promotive of exports.

Suppose Canada Imposes an Import Quota on Beer