Suppose a small country sets all of its tariffs at 40% which causes a reduction in imports by 20%. If the total imports affected by the tariffs are 40% of GDP, the net national loss from the tariffs as a percentage of GDP is:

Question

Quizplus · Accepted Answer

The net national loss from the tariffs can be calculated by considering the reduction in imports and the percentage of GDP affected. If imports are reduced by 20% and the affected imports are 40% of GDP, the direct impact on GDP is 20% of 40%, which is 8% of GDP. However, since the tariffs are set at 40%, the cost of the remaining imports increases, which does not represent a loss but a transfer from consumers to the government. Therefore, the net loss is not the full impact of the reduced imports. The question seems to aim at calculating the direct loss from reduced trade, not accounting for the tariff revenue or the economic distortions it causes, which would be more complex to calculate without additional information. Given the options and the information provided, none of the answers directly correspond to the calculation described, suggesting a possible misunderstanding of the question's intent or a need for clarification. The correct approach to calculate the net national loss as a percentage of GDP would involve more detailed economic analysis, including the effects of reduced imports on domestic production, prices, and consumption, as well as the distributional effects of the tariff revenue. Without further information, a precise calculation cannot be provided.

Suppose a Small Country Sets All of Its Tariffs at 40