Figure 13-2
-Refer to Figure 13-2. If the interest rate was initially at r0 and an import quota was imposed, what would happen to the real interest rate?
A) It would not change because the world interest rate is not affected.
B) It would decrease because supply would shift right.
C) It would not change because both supply and demand would shift right.
D) It would decrease because demand would shift left.

Question

Figure 13-2 
-Refer to Figure 13-2. If the interest rate was initially at r0 and an import quota was imposed, what would happen to the real interest rate?
A) It would not change because the world interest rate is not affected. 
B) It would decrease because supply would shift right. 
C) It would not change because both supply and demand would shift right. 
D) It would decrease because demand would shift left.

Quizplus · Accepted Answer

Imposing an import quota primarily affects the trade balance and goods market, not the global financial market directly, so the world interest rate, which determines the domestic interest rate in a small open economy, would not change.

Figure 13-2 -Refer to Figure 13-2. If the Interest Rate Was Initially