If a quota on lumber were implemented, then at the original exchange rate there would be a
A)surplus in the market for foreign-currency exchange, so the real exchange rate appreciates.
B)surplus in the market for foreign-currency exchange, so the real exchange rate depreciates.
C)shortage in the market for foreign-currency exchange, so the real exchange rate appreciates.
D)shortage in the market for foreign-currency exchange, so the real exchange rate depreciates.

Question

Quizplus · Accepted Answer

A quota on lumber would reduce the supply of lumber, leading to a decrease in exports. This would create a shortage in the market for foreign-currency exchange, causing the real exchange rate to appreciate as the demand for the domestic currency increases relative to the supply.

If a Quota on Lumber Were Implemented, Then at the Original