Suppose goods produced domestically and abroad are identical. The small open economy (SOE) imposes a tariff t on imported goods, and the rest of the world imposes a tariff t on goods exported
From the SOE. Then
A) trade declines between the SOE and the rest of the world.
B) economic welfare declines.
C) aggregate output stays the same, but domestic demand shifts from imports to domestically produced goods.
D) aggregate output increases, because the SOE wins the trade war.
E) there is no effect, except on prices.
Correct Answer:
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